Charging excessive default interest rates is irresponsible
Product-less lender, Octane Capital, today slammed the practices of a growing number of specialist lenders for charging excessive default interest rates — and warned brokers to triple-check the small print when selecting a lender.
Brokers were also warned to be aware of the way some lenders conceal default interest rates by setting a very high standard interest rate that is discounted if payment is made on time — meaning the default interest rate, if payments are late, is labelled as the ‘standard’ interest rate.
Astonishingly, some lenders are charging as much as 4% in interest per month when borrowers fail to meet their payment schedules (whether this is described as the standard or default interest rate).
When its own clients default on their payments, Octane charges 2%–3% more per annum not per month, with the rate chargeable depending on the event of default.
Mark Posniak, managing director, Octane Capital, commented:
“By charging ridiculously high default interest rates and, in some cases, concealing them as standard rates of interest, the industry is doing itself no favours. Lenders should work with borrowers who are struggling, not least because that way those same borrowers are more likely to get back on track. Instead, some lenders are kicking borrowers when they’re down, which is not just greedy and self-serving but plain myopic. I suspect some lenders are doing this because competition in the industry means margins are being squeezed and so default interest rates can be an instant boost. It’s almost as if they want borrowers to default. But it’s bad for the industry’s brand and makes absolutely no business sense. We’re urging brokers to be extra-cautious and triple-check the small print, especially given the slow-moving market, which is putting clients under greater pressure.”