Bridging lender Octane Capital has hit out at the policies of other specialist lenders for charging default interest rates as high as 4% a month.
It added that 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.
Brokers have been urged to check the small print on deals to avoid falling foul of these high default interest rates.
Mark Posniak (pictured), managing director, Octane Capital, said: “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.”
When its own clients default on their payments, Octane charges 2%–3% more per year, not per month, with the rate chargeable depending on the event of default.