0.8% is all it takes

0.8%.  Doesn’t look like much.  Doesn’t sound like much.  By itself, it’s not much.

And that’s how the fuckers of the payday loan industry get you.  Come on guy, it’s only 0.8% a day, whats the worst that could happen?  Well, I’m not your guy, buddy.

See, 0.8% is what the payday loans are currently capped at, per day.  This has a representative APR in the 1,000s of %.  A quick google shows the following representative APR’s for a few payday loan companies;

Some real crappy loan rates

Admittedly, the total repayment for a payday loan is now capped at 200% of the original loan, but let’s ignore that for now.

Let’s also ignore the fact that the Bank of England Base Rate is currently 0.5% a year, so less than the daily rate on a payday loan.

Imagine saving with this kind of return
Saving £250 a month, with an assumed rate of return of 8% per year over 20 years nets us a sweet £142,250.

If we were to assume an annual return of 1,295%, the rate that is advertised on sunny.co.uk, with the same monthly savings and over the same time frame, we would increase our £142,250 to £7.9×10^25…  that’s;

£79,283,477,604,112,900,000,000,000

Or £79septillion, obviously.

According to wikipedia the Gross World Product was $59.38 trillion.  That’s $59,380,000,000,000.

You would be worth 1.3 trillion earths, assuming a 1:1 exchange rate.  Not bad.

How long would it take to achieve Financial Independence?
If we are looking for £625,000 then it would take us 30 months to breach this, or just wait another two months to break the £1 million barrier.

In fact, you could save a mere £1 a month and it would take you just 55 months to reach Financial Independence at this rate or save a measly 1p a month and it would take 76 months.

If you could invest with this kind of return, you would, but why people borrow at these rates blows my mind.  Of course, rates of return like this aren’t going to happen, so you may as well play the lottery.

Mr Z

14 thoughts on “0.8% is all it takes

  1. ermine

    I thought you were having us on with some of those names until I looked up a couple of the websites – and the first one at least was for real 😉

    I always reach for my bullshit gun when anybody cites anything in terms of how much it costs per day. If you need a 1/365 divisor to sell something then I don't want to buy.

    Reply
  2. weenie

    septillion – learn something new every day, thanks!

    The sad thing is that people will borrow at those stupid payday rates because they are desperate and because they are uneducated.

    Or if they had a decent education, just plain stupid.

    Reply
  3. Dividend Drive

    Nice post. It is one of those things which anyone who is money aware to any sort of level can recognise is the case. But actually sitting down and doing the maths really brings it out very clearly. It is a pretty sickening industry when you think about. Fortunately, they are currently looking in ill health. In fact, the BBC wrote an interesting article on their future a few days ago: http://bbc.in/1GwhWcY. Worth a read.

    There are a number of people I suspect who take these loans as well as they have no choice. However, it is a sure-fire way to exacerbate your situation. Very, very sad.

    Let's hope they bump into your post before taking one out…!

    Reply
  4. theFIREstarter

    It's so obvious to the rest of us isn't it!?

    You now need to go back and SEO the shit out of this so it appears top in the rankings for "payday loans" and similar search terms, so people considering taking one out can learn this valuable lesson! 🙂

    As mentioned above the industry is taking a hit right now, partially because of the new rules put in I guess. I read wonga.com posted a massive loss for the last year. Why these companies were ever allowed to trade with those terms in the first place is beyond me though, it was effectively legalising loan sharks.

    Reply
  5. Mr Zombie

    Hi Ermine,

    Sadly, they are all real.

    Can't agree more, if something needs to be justified by reducing it into a daily or weekly payment then it's time to get suspicious.

    Mr Z

    Reply
  6. Mr Zombie

    I did read some comments on a forum from someone that had taken out a payday loan and was struggling with the payments. Apparently payday loans aren't the issue, rather it's the bankers and their bonuses…. Confused me.

    Reply
  7. Mr Zombie

    It's a crazy interest rate. Yeah, the industry has taken a battering recently, probably for the good.

    Haha, I don't think they will some how! 🙂

    Mr Z

    Reply
  8. Mr Zombie

    Hahah, yes! Get to the top of the search and then zombieloans.com, only 900% APR. Cheap as chips.

    You know, I always thought a free market worked. Products like these would be too expensive and so just wouldn't exist. Apparently not and they need to be legislated away (or is it regulated?)

    The thing is, the huge interest rates are their because the loans are unsecured and presumably a fair chunk of the customers aren't repaying. So if you do repay, you are, in part, just passing your money to another customer who has no intention of repaying….

    Mr Z

    Reply
  9. Dividend Drive

    I fear they probably won't either. Never know, though!

    Yes, it certainly seems to be a good thing that they are getting hit at last. What will be interesting to see is what kind of payday loans companies emerge from the other end. Maybe, just maybe, they will come out of it a useful member of financial society. Erm…a big maybe.

    Reply
  10. Theres Value

    Interesting point about passing it on to other people. That is why the rates are so high, because the people who are being lent to are about the most risky investment anybody could make.

    Unfortunately, they are the people who need these loans the least, and rather need the financial education the most.

    Funny, I also was thinking about how to SEO the shit out of this and bump this kind of information up the rankings in google, so that it would appear on the first page…

    Reply
  11. No More Waffles

    Mr. Z,

    Holy hell? People fall for this kind of crap? I thought these type of practices were illegal in large parts of Europe – at least I've not heard of them in Belgium.

    I wish my investments went up at a blistering 0.8% every day. Retirement in six months, here I come!

    Also, had a great laugh with the South Park reference! 🙂

    Have a good weekend,
    NMW

    Reply
  12. Mr Zombie

    Hi NMW,

    Yep! Sadly they do. I was watching a program I recorded a while back, on the recorded adverts there was a payday loan company advertising. This was before the new regulations came out. The APR was 5,000%+!

    That is a superb episode of SP 🙂

    You too,

    Mr Z

    Reply

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