How much is too much ?

At the tender age of 17, I was not particularly financially savvy. When the company I worked for moved to a new head office, it was a similar distance from my home to the old one, but the public transport links were appalling. Not being able to drive, I looked at my options and thought that the best one would be to purchase a bicycle. My last bicycle had been bought for me by my parents for £5 from a second hand shop, so it's fair to say that I had no preconceptions as to how much it would cost.

When I arrived at the bike shop, I realised that cost of the mechanical steed I required was going to exceed the amount of money in my account. No problem, the helpful man in the shop pointed out that I could get the bike on credit and pay it off when I had the money. I happily signed the agreement and rode home. The following month - I paid off the bike in full and thought no more about it.

A short time afterwards, a man phoned me from the finance company. He said that as I was such a good credit risk, they would like to offer me a bank account. I said that I already had one. Not like this one he said and began to extol the various virtues of the account in question. One of these virtues was a £1,000 overdraft facility. As I regularly blundered over my overdraft limit at the time and incurred punitive charges that took me even further over, the thought of a decent sized overdraft held some appeal. I signed up for the account and that was that.

A few months later - the man phoned me back. He explained that I was creeping ever closer to the £1,000 overdraft limit and suggested that it was increased to £2,000. Why not I thought. I was expecting a bonus from my employer that would hopefully bring my balance back down again and by this time, I was fed up of cycling, so driving lessons were taking their toll on my bank balance, so I agreed. The bonus never came and the story repeated until the overdraft was increased until it hit £3,500, probably 5 times my monthly wages at the time.

As I was getting near to that figure, I dropped into the branch wondering why they hadn't called me to increase it yet further. That was when they explained that they weren't prepared to lend me any more money. It was then that I started to realise the awful truth of just how much it costs to service such an overdraught (which took me several years of hardship and second jobs to pay back). Now you're probably guessing that the financial institution concerned is no longer on my Christmas card list (and you'd be right), but they taught me a very valuable lesson.

So when I see the advertisements on prime time TV for payday lenders, they get my hackles up. The adverts highlight how difficult people find things towards the end of the month, and they argue that there's no need - just give Quickdosh or Lend-Us-A-Few-Quid-Till-Payday.com a quick call and we'll have the money in your account within moments. As all the actors and actresses are smiling and happy, the eyewatering APR appears on the bottom of the screen. This APR is usually in the region of 4 figures - thousands of percent!

You might argue that it's better for people to go to these kind of lenders rather than doorstep loansharks, but the simple depressing truth is that for most people, if they are short this month, the chances are that if nothing's changed, they will be short next month. If they have borrowed from this kind of lender, then they will be short by their fees too so that they have to borrow more and more each month.

It's not the existence of the lenders that I object to, it's the cost of the loans. I realise that the rate you pay depends on your perceived risk (as the Eurozone countries are finding out much to their disdain), but how much is too much ? Should there come a point where you should not be allowed to lend credit above a certain rate?