The Finnish company behind a new text-a-loan service has defended the 292 per cent per annum interest rate for its instant loans, claiming it was justified by meeting a market need.


Richard Yoon, director and country manager of Ferratum New Zealand, said if the company charged 500 per cent per annum for a $100 loan over 30 days, the customer paid only $1.36 a day. ''That's not high,'' he claimed.''Frankly speaking everybody thinks it's very high but default fees can be high on credit cards and dishonoured cheques.''


But the Retirement Commission, which provides budgeting advice to consumers, says any interest rate over 10 per cent per annum for a personal loan would be regarded as high and people should shop around before signing up to any deals. The average interest rate on credit cards is 18 per cent, the commission said.


The Finnish business has operated since 2005 and now has 15 branches in Europe and 700,000 clients.


It wants to grow its client base to 1 million by year end, but doesn't expect to make a profit in New Zealand for the first year.


The company provides short-term, unsecured quick cash loans of up to $600 via a mobile phone. Loans could be granted as quickly as within four minutes. Ferratum paid $5 to credit check every applicant and there was also a $5 bank transfer charge.


Yoon, who has a lengthy banking background in New Zealand, said the ''micro-loan'' facility, for which there is a $28 establishment fee, is for ''urgent financial problems'' and filled a need in the market. ''If we don't have them, who's going to have them? The bank? No. The finance companies? They take time.''


He wouldn't reveal the group's default rate, saying it was commercially sensitive. ''We are successful in Europe. If we get good data (here) we can stay,'' Yoon said. ''We are a small company but if we can make New Zealand banks speed up, that's good for New Zealanders.''


Wayne Croad, managing director of rival lender Finance Direct, said there should be an onus on lenders to ensure people could afford to repay their loans.


''It is morally bankrupt of lenders to not ensure that borrowers have the ability to repay via checking their credit rating and affordability. You shouldn't have someone paying 300 per cent interest rates to subsidise someone else who is not going to pay.''


Finance Direct rates start at 12.95 per cent for low-risk customers. The company had a rate for risk model but would not charge ''exorbitant'' rates or fees to justify a lending proposal. ''This is what second tier mortgage lenders did in America and Europe  they didn't check affordability or people's credit ratings when lending on mortgages and this equalled total disaster, socially and economically,'' Croad said.


''Cash in a flash type lending with no due diligence is simply irresponsible lending regardless of the rates and will come home to roost.'' 




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