All about Pay day loans
All You need to know about Pay day Short-term loans.
There is no shame in having a minor blip in everyday finances. The unfortunate current climate dictates that more and more modern families are now living from payday to payday, and many just don’t have the financial cushion to take care of the uncertain and unknown issues than can crop up out of nowhere and send even the tightest run budgets off kilter.
Less than 10 years ago the phrase Pay Day loan was unheard of, and the only way to get a short-term loan was a bank overdraft, a sub on a wage or a loan from a friend or relative. If you have less than perfect credit, then the bank overdraft facility would probably be off the list straight away, the other two options would always involve disclosing your personal situation to those who may not necessarily need to know. This is where the Pay Day lenders fill a gap.
There has been a lot of bad press about Pay Day loans in the beginning, and rightly so, as regulations did need to be enforced to make sure that the best financial decisions were being made for the customer and not just the business. As the regulations have started to take force and the results have weeded out the ruthless and poorly run companies, you are now left with financial options that can help many people out of a short-term financial dip without having to bear their soul to a family member or work colleague or made to feel a failure for having to do so.
Short term Pay Day loans now follow such regulated guidelines that before you agree to take the loan you will know exactly the amount you will have to pay back, and the exact date the payments will be taken. The better companies are very upfront with their customers and will ensure that the customer is capable of repayments at all times. There will be an eligibility check and form of credit check carried out, but the decision to lend is made on your personal status and is geared up to be collected at the time of your next payday or over a series of consecutive paydays. Pay day loans are now aiming to be sensible and responsible lenders and will not lend more than a person can comfortably afford to pay back and all lending criteria is based on current circumstances.
Often a short-term payday loan can be arranged within a few hours, depending on the company chosen but most certainly within a working day is usual. This is one of the reasons that Pay Day lenders have become so popular, they are quick, discreet and simple to arrange.
Pay day loans should never be viewed as a long-term solution to debt problems, they are for a quick fix, for example, should you need emergency car repairs to enable you to get to work, or a household repair that just can’t wait. If you feel you would need longer than 3 or 4 months to repay, then your search should not be for a Pay Day loan as this will be the more expensive option against longer term lenders, whose interest rates will be a lot lower. You should look at all options for your situation, an example of this would be a Pay Day loan to purchase a new washing machine, against purchasing the item on credit through a catalogue credit scheme or store credit. The interest rates and total to pay back could end up much less using the latter. It is very dependent on why the Payday loan is needed and should only be used when all other avenues of credit have been exhausted.
It is wise to make sure you can fully repay the loan within the term times agreed, as this can not only damage your future credit, but can land you in hot water with interest rates. This is where payday loans get their bad press, the interest rates. These rates are extremely high, higher than any other form of credit available. This is because of the short space of time the money is lent, and the very high risk the lender is taking. Often the cost of trying to recover small amounts of money, less than £300 for example, would cost the lender more to chase, so in effect the interest rates do reflect the losses the Payday lender has and could make from other borrowers. This is not to say debts are written off, the debt is still very much recorded on your credit file and will affect your future credit ability.
It is vital to really check out the interest rates from all the available lenders before you go ahead with any short-term loan, as well as making sure your repayments on the loan will be affordable on the day that you agree the money should be deducted from your account. If for example you are paid on the 1st of the month, bear in mind your current direct debits that may also be taken on the same day as your Payday loan repayment, you may pay your Payday Loan, but it will not help if your bank then bounces your longstanding agreements, as this can start to cause a catastrophic chain of events. Leading to more short-term loans to cover repayments, this is where some customers can really find themselves in trouble.
Important things to know before taking a Pay Day short-term loan.
First and foremost, be honest with yourself about your financial situation, will a Pay Day Loan solve your problems, or does it just sort out one problem leaving you with another? If this is the case, then talk to someone and get help before you take the Pay Day route.
- Always have an idea of how much you need to borrow and how long it will take to pay back.
- Use the online website calculators to find the best lender for your requirements and stay disciplined to only borrow what you really need. You may find you are offered more credit than you asked for initially, this can be tempting.
- Check out the interest rates (% APR Variable) this will give you an idea of how expensive it will be to lend with the company. The majority of Pay Day lenders do have an APR of over 1000%, this is confusing as this is based on a lending period of 12 months, and as Pay Day loans rarely last longer than 3 months, it may be easier to look at the total amount payable, to work out how much extra you will pay after you have repaid the initial amount borrowed. For example: – Total amount of credit £80, duration of the agreement 29 days, rate of interest 292% per annum (fixed), total amount payable (in one repayment) £98.56. Representative 1281.8% APR. This shows that the customer will pay £18.56 in interest for borrowing £80 for 29 days. When it is broken down, you can see how much interest is repayable, and how quickly these rates can get out of hand with any missed payment.
- Check your regular bank direct debits or standing orders will not be affected by any repayments being taken for the loan, if this could be the case then it is wise to make sure that the date of your loan repayment is adjusted, or your bank agreements are covered. All UK bank accounts charge for unpaid direct debits, some can charge over £20 per payment returned. Should one loan repayment bounce a direct debit, you could find yourself in a worse situation than when you started, as this will lead to bank charges, plus the possibility of the company you have missed the payment to adding their own charge as well.
- If for any reason you think you may not be able to make the re-payments, then it is imperative that you contact the customer care team for your lender to talk about the situation. The customer service departments of all responsible lenders are very compassionate and caring and they will help you to work out affordable repayments to recover the loan amount. They will always strive to help before attempting to recover debts legally. But is it vital that you continue to stay in touch with your lenders and let them help where they can.
- Never use a short-term Pay Day loan to cover repayments for other credit debt.
- All Pay Day Short-term lenders should be members of the FCA (Financial Conduct Authority), these details will be in a prime position on their websites and on any correspondence. If you can not find this when choosing a lender, then it is wise to steer clear. These firms cannot now request an individual’s bank details or take a payment from their account without their explicit consent first. Payday loan brokers will also have to include their legal name, not just their trading name, in all advertising and other communications with customers, and state prominently in their advertising that they are a broker, not a lender.
- The FCA have made some changes that include limiting the amount of times that a payment can be rolled over, under the new rules you will only be able to roll over your loan twice before the balance will be due. This protects you from spiraling debts, while still maintaining some flexibility should you need to extend a loan due to exceptional circumstances. They have also stopped the lenders being able to try to collect payments more than twice, as this does cause extra problems with bank accounts and direct debits being cancelled, thus leading to more debt problems. This is the same with collecting part payments, this will stop your bank account from being emptied when you were not expecting it y the lender taking what they can.
- The FCA have also introduced a repayment cap, before this cap, if you defaulted on a loan, the lender could continue to add interest until full repayment, but under the new regulations, the interest rates and loan amount is now capped, interest and fees on all high-cost short-term credit loans are now capped at 0.8% per day of the amount borrowed. If borrowers do not repay their loans on time, default charges must not exceed £15.
In addition, the total cost (fees, interest etc) is capped at 100% of the original sum, which means no customer will ever pay back more than twice what they borrowed.
It is very important to know from the start that any short-term loan should never be used to help settle outstanding debts, please get some unbiased advice of how to deal with any debt before deciding to take the Pay day loan route. Here are some great websites that will be able to help and point you in the right direction if you find yourself facing financial problems.