Payday Loans: What are they?
Payday Loans are designed to give you a small, short term, unsecured loan which you repay on your next pay day. Sometimes, waiting for payday to come around can feel like an age, especially if you have prematurely spent last month’s packet! Too often can unexpected expenses arise whilst your account is somewhat sparse, from ‘final demand’ bills, MOT payments, to emergency health care costs. What is unique about Payday loans is not only that they can be used for almost anything, but that they are a quick and easy way to access credit. The majority of payday lenders can now be found online and provide just one simple application form for you to fill out. Providing all the information you enter is accurate and verified, payment is usually received on the same day as your application is submitted. You are recommended to speak to a financial advisor before obtaining a payday loan; most legitimate online lenders have associations with support agents available 24 hours a day. As Payday loans can be used as funding towards almost anything, they tend to come under various guises from, ‘Cash Loans’, ‘Quick Cash’, ‘Short term loans’ and ‘payday advances’ to name but a few. There are also ‘Low Income Payday Loans’ which are designed especially for individuals with a limited salary.
Payday Loans are specifically designed for people with a poor credit history. This is because, it is a form of unsecured loan, you do not have to secure it against any collateral. Additionally, payday loans can be generally obtained without any credit checks being made. Nevertheless, there are a few restrictions in order to qualify for this type of loan; you must be at least 18 years old, have a minimum monthly income (usually around £300 or less), be a UK resident and have a UK bank account. Payday loans are designed to offer a small, temporary sum of money and so therefore the lender usually only offers between £80 to £1,500. Furthermore, as with most unsecured loans, interest rates are relatively high often reaching 3 to 4 digits. Repayment is usually calculated on a weekly/monthly basis depending on when the borrowers next payday is.
The Payday Loan business is now a huge £900 million a year industry. According to Consumer Focus the payday loan market has boomed, quadrupling in size since the credit crunch; UK lenders charging as much as 4,400% annual interest at one stage. Although, many payday lenders complain that APR is an unfair measure as the loans granted are specially designed to be paid off within 28 days and can be cheaper than most unauthorised overdrafts. Despite the huge interest rates, it’s been recorded that over 1.2million people have taken out short term loans over the last 4 years emphasising that a growing priority within a typical UK household is a ‘quick fix’ to their finances rather than long term solutions. Despite the boom in the payday loan market, the Better Banking Campaign controversially claims that approximately 5 to 7 million people in Britain alone are still denied credit today.
Payday Loans originated in the US, and as such 5 of the 7 biggest payday lenders in the UK are actually US owned or financed. Ironically, many American States have now effectively banned these forms of short term loans by placing caps on interest rates that lenders charge. MP Stella Creasy has recently proposed a Bill to enforce similar regulations in the UK in regards to short term lending. The ‘Ten Minute Rule Bill’ comes after a front page scandal which reported over 5,000 innocent Britons were told they owed hundreds of pounds in loan repayments, despite never obtaining a loan in the first place. Creasy hopes she will receive government approval to tackle the increasing level of loan harassment to families living in poorer communities. The Bill hopes to place a cap on interest rates, limit loans to one quarter of monthly income and hopes payday loan firms will help those who do not have access to affordable credit. To summarise, the Government is being urged to crack down on ‘legal loan sharks’ in an attempt to restore some hope to households being harassed over their debt problems. Before now, The Office of Fair Trading has failed to cap both unauthorized bank charges and interest rates on payday loans, leaving borrowers in somewhat of a pickle!
Doing some background research is essential when looking for a good deal on an unsecured payday loan. Campaigners are warning that Payday Loans are potentially ruinous, with more and more firms claiming they can provide the cash in less than an hour. Some UK lenders are even promoting their loans on Social Networking Sites, such as Facebook, outraging some people who believe impressionable 18 year olds will fall into the trap of obtaining a high interest loan. Similarly, IPhone Apps have been created offering instant access to unsecured loans. As many lenders now operate online, for the ease of the consumer, finding a legitimate firm is more difficult than ever. Always seek professional advice before obtaining a payday loan. This type of loan is designed especially for emergency situations and should not be used as a regular source of money. A more regular and reliable alternative for example would be to obtain a credit card which is designed to help budget your finances with stable monthly repayments and can be used to help improve your credit rating.
This article is written by Bette McStafford who works for JustUnsecuredLoans.com who specialise in finding loans for people with bad credit. This article has some the industry's best advice on Payday Loans and what they can do for you.