Is Satsuma Loans really the “antidote” for payday lenders

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Satsuma Loans promises to be an “antidote” for payday lenders – will it really be better for borrowers who need cash fast?

A new entrant in the short-term loan market has promised to be the “payday loan antidote” by putting customers on weekly repayment plans.

Door lender Provident Financial has launched ‘Satsuma Loans’, an online service that will allow people to borrow up to £ 300 over a 13 or 26 week period, paying back as you go and at no additional cost.

Founded 130 years ago, Provident Financial has focused its business on providing credit to people who are struggling to be accepted by High Street banks.

Challenge: Provident Financial thinks its Satsuma loans are the antidote to payday lenders.

Its challenge to the payday loan market, which has come under scrutiny by the Financial Conduct Authority for practices seen as irresponsible, is therefore not surprising given its history.

But is a Satsuma loan the “antidote” to payday loans? It’s Money take a look.

The cost of the loan

A £ 100 loan taken out over 13 weeks will result in the repayment of £ 140 in total – to £ 10.76 per week.

The same 26-week loan will be proportionately cheaper, with £ 168 to pay back – to £ 6.46 per week.

However long it takes to pay off, this is not a cheap loan. In fact, if you really need the cash until your next payday, and you don’t need to extend the loan beyond 30 days, a payday loan might be cheaper. A £ 100 Wonga loan will cost £ 137.15 over 30 days, for example.

But, because the Satsuma loan is spread over a longer period, the real interest rate is lower – although at a still high APR of 792 percent for 26-week loans, 1294.3% for 13 weeks – as many payday lenders, the APR reaches thousands of percent.

It’s time to pay

Where Satsuma Loans significantly improves over typical payday loans is that it gives clients more time to pay off their short term loans, as well as progressive repayments.

A major problem with a payday loan is that you take out a loan of, say, £ 400 to make it up to payday, knowing that you will have over £ 500 to pay off a month later.

Spreading repayments over three or six months allows people to meet their obligations more affordably and they can budget accordingly, reducing the risk that taking out such a loan will push them into more debt.

How will they assess affordability?

While payday lenders like Wonga pride themselves on their complex algorithms that assess an individual’s affordability when an application is made online, Satsuma Loans adds an extra layer to the process.

Once an application is made online and goes through Satsuma’s own online assessment, a customer service member will call the applicant to discuss the loan with them, to get a better idea of ​​their income and expenses and more. information that may not be found on things. like credit reports.

New Product: Satsuma's website carries the features of those exhibited by payday lenders.

New Product: Satsuma’s website carries the features of those exhibited by payday lenders.

Payday lenders often claim that their algorithms see a significant proportion of their applicants rejected because they are unlikely to repay, but the FCA was unconvinced and proposed to impose on payday lenders that they owe carry out more stringent affordability checks before approving loans. .

A study by Christians Against Poverty found that many people who took out payday loans were not asked about their monthly income or expenses.

How are refunds made and what if you can’t refund?

One of two branches of Provident Financial is its Provident Personal Credit “home collected” consumer credit business – which involves the sale of loans and the collection of door-to-door repayments by its staff.

Door-to-door lending companies have a questionable reputation, and Provident Financial itself has been criticized for its practices following a BBC Panorama investigation last October.

However, for Satsuma loans, applications will be made online and there will be no door-to-door sales.

Like payday lenders, Satsuma uses Continuous Payment Authorities (CPA) to take payments directly from people’s accounts. He does not need any other authorization to loot borrower accounts.

The use of CPAs by payday lenders has been criticized by the FCA, but Provident promises to use “continuous payment authorities responsibly”.

In the event that a person cannot pay, or knows they are unlikely to pay, Satsuma says it will not cost them extra fees or late fees, claiming that a person will never pay more than which she had agreed from the start. .

Provident Financial said, “If a client is in financial difficulty, we always seek to engage with the client and seek to assess individual circumstances. Solutions may include one or more one-off payments to catch up, reduced payment terms as well as extended time limits to catch up on missed or reduced payments. ‘

Considering the steep late payment fees charged by payday lenders – and the exorbitant cost of “renewing” a payday loan for another month – this position should be welcome if it turns out to be the case.

How to Apply: Provident Financial will sell Satsuma loans online, not door-to-door.

How to Apply: Provident Financial will sell Satsuma loans online, not door-to-door.

In the event that you cannot pay, Satsuma stresses the importance of contacting them to let them know so that the CPA is not used to take much needed money from a client.

He says that in this case, he “will discuss their situation and, if appropriate, discuss the forbearance provisions.”

But if you don’t get in touch with Satsuma and you miss payments, and Satsuma is unable to reach you, then the debt collectors start making a call.

Expert advice

Carl Packman, author of Loan Sharks: The Rise and Rise of Payday Lending, says: It is certainly interesting. Provident has always presented itself as having a different customer base than payday lenders, so it’s surprising to see them enter this market – especially as many are leaving it.

Provident is clearly jumping on the anti-payday loan product bandwagon at a time when places like The Money Shop are being pilloried – rightly – in the press.

All the things that are supposed to characterize these new products – using CPA responsibly, setting prices up front – all of those things that payday lenders should be doing anyway.

We can’t somehow say if Provident will deliver on their promises with their Satsuma product, but it’s very telling that this is how they choose to market themselves.

In summary, I think this product capitalizes on the concern over payday loans – but we have to remember that mortgage lenders like Provident are often just as bad.

Like payday lenders, all mortgage companies were also called on the competition commission in 2004 to explain why customers were paying higher prices for their loans. They are not the good guys.

It’s still much cheaper to find your local credit union and get a loan through them.

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