Loans company Cash Converters International Ltd aims to open more than 40 new stores in Britain this year adding to a surge in growth among companies supplying expensive short-term credit to cash-strapped Britons.
“People will be doing without luxuries. When times are tough, people cut their cloth accordingly,” Cash Converters UK Chief Executive David Patrick told Reuters in a telephone interview. “People are getting more conscious of their budgets and getting more savvy.”
Payday loan firms and pawnbrokers are one of the few parts of the global financial sector to have grown during the credit crisis, as mainstream banks have increasingly refused loans to low-income customers.
Cash Converters, headquartered in Australia, reported record profits of $27.6 million for 2011, despite the global economic downturn. In the UK, its personal loan book grew by 746 percent to £5.0 million at 30 June 2011 and there were 100,988 cash advances made during the period, totalling £10.5 million.
American loans firm EZCORP owns a 33 percent stake in the group.
Patrick said this growth meant Cash Converters hoped to have 250 stores in Britain by the end of 2012, up from 206 at present, and added that December had been a “very busy” month.
The new openings in Britain will add up to 300 new jobs, Patrick added.
At Cash Converters' stores, customers can sell second-hand goods to get money in return. The company also has pawnbroking and gold-selling services, and hands out short-term loans to tide people over until their next monthly wage bill arrives.
Cash Converters UK lends out between 10 and 600 pounds for a period ranging from two weeks to two months.
Rival payday loans firm Ferratum told Reuters this week that it was also expecting big growth in Britain this year, but the sector has been criticised by some politicians for often charging exorbitant interest rates that can exceed 1,000 percent on their loans.
However, Patrick said Cash Converters loans could work out cheaper than taking an overdraft at a mainstream bank and added that 34 British members of parliament (MPs) had visited his company's stores over the last 14 months as part of steps to regulate and monitor the sector.
He said his company's loans usually cost between 10 and 30 pounds for every 100 pounds borrowed per month, so a 200 pound loan over a 30-day period could end up costing 260 pounds, whereas research from his firm estimated it could cost 350 pounds via an unauthorised overdraft facility.
Cash Converters' research said this showed that while the annual percentage rate (APR) on its 200 pound loan stood at 1,413 percent, on the rival overdraft which could cost 350 pounds, it would stand at 90,888.9 percent, and Patrick added that banks often chose not to show APR rates on their overdrafts.
“We're recession proof. We can do well in good times and we do well when the economy's tough.” - Reuters