Website makes loans respectable - at 500pc interest24 October 2004
An internet finance firm charging exorbitant interest is trying to make a loan market previously dominated by back-street dealers and loan sharks respectable.
Online Finance Ltd, trading as www.cantwait.com, is charging 521 per cent interest on short-term "wage advance" loans to people with financial emergencies. Customers who need money immediately are advanced a maximum $1000 overnight against their wages - so long as they can prove they are in full-time employment with a minimum wage of $1500 net a month. There are no credit checks and they do not have to provide security.
The Consumers Institute is concerned the loans will appeal to the desperate, who will end up in serious trouble if they cannot repay the money.
"Anyone who needs money in a hurry for a quick fix are the easy targets," said institute chief executive David Russell.
The brains behind the "revolutionary" idea, financier Richard Blake, said a lot of his clients were high-wage earning "Ponsonby yuppies". They could easily repay the money within a week, avoiding the high interest, he said. Blake said the company had developed a code of ethics that would prevent customers from falling deeper into debt.
The company's average loan was for $300. The interest was $30 if paid within a week, but compounded over a year to $1560.
Online Finance recently reduced its interest rate from 730 per cent.
Blake's business, which he runs with a staff of seven out of a plush suite in Auckland's Shortland St, is booming, amid fears that Kiwi households are more deeply in debt than ever. He acknowledged the short-term loan market had previously been dominated by "back-street, cheque-swap organisations" or loan sharks, but said his firm was not like that.
"We don't even see our customers, let alone break their thumbs. We provide short-term finance of $300 or $400 for the cost of a night on the town."
A small number of clients had taken out loans with no intention of paying the money back. "When they default we serve them with litigation straight away."
The typical client was aged 25-40 earning $2000 net a month. Because of the high-risk of the business, part-time and casual workers, as well as the self-employed and students, were not accepted. The business had been running for a year and Blake said he had hundreds of customers. Plans for a roll-out of branded stores across the country had been shelved for now.
Blake said the code of ethics included a 30-day stand-down after three loans and giving four extensions to those who were having difficulty repaying.
Mt Maunganui administration worker Jane Jones has taken out four loans with Online Finance. When she first saw the firm online she was worried it appeared to be a loan shark operation. But she said there had been no problems, and the loans were OK as long as they were paid back quickly.
Source: stuff.co.nz
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