It is interesting how expensive it is to give out small loans.The 42% is eyecatching.
Lts factor in static costs for lenders.
Used to be reckoned that every loan cost e200 to get it on the system.
This can only be recouped by increasing APR or doing what Banks/HP companies do and that is have documentation fees onto agreements.Most lenders will not lend below 5,000 as they cannot cover their admin costs and make a profit.
So on 5,000 over 36 months.
Bank /Hp can charge 5.9% + Fees means payment shows on docs @ 151.88 but real monthly when charges added (say 150) = 156.45.(people have got used to accepting these charges)
Credit union charge 5.9% = 151.88 and no charges.
So if credit Union charges @ 156.40 Apr appears as 7.9%
It means that on 5,000 , Credit Union loan @ 7.9 is the same cost as HP Loan @ 5.9 + charges of 150.
If it costs Lender 2% for them to borrow 5000 for 36 months, and if they lend 5,000 at 5.9% they have gross income of only 476 . That 476 has to cover their running costs arrears etc .
I just do not see profit in it .
It means that if 1 in 20 loans are not repaid ,lenders, need circa 10 good loans just to make up that shortfall.
Back to Kent Credit Union.
Example
1,000 @ 26.8% over 36 months on 42% = 40.72 per mth.
1,000 ' 2% (cost to UNion) = 28.64
................................................................................
Monthly gross profit to union = 12.08.
Means that on 1,000 loan @ 26.8% Union makes
12.08@36 = 434.88 gross profit..
So whilst 26.8 % APR appears high , when you break it down it is ok.
As Brendan says , {interesting}.