Blog about payday loans and their risks

There are many different types of loan available in the UK but unfortunately they are not accessible to everyone.  Ever since the financial crisis it has become increasingly difficult to borrow money from traditional lending institutions such as banks and building societies. However, payday loans and bad credit loans have become far more popular over the last few years and are now a more mainstream form of lending.  It is hard to walk up a high street without seeing a fast cash loan advertisement in a shop window and payday loan companies such as Wonga now sponsor football teams.  These high interest short term loans are now available in shops and online and it is impossible to avoid the aggressive marketing of the payday loans industry. 

Ever since companies offering payday loans have become more mainstream there is also increasing criticism of their business practice.  There is currently very little regulation for companies offering payday loans and this has led to national concern over the way in which payday loan companies do business and to what extent they exploit their customers.  While this concern is extremely valid there is an obvious national demand for payday loans which seems to be increasing every month.

Find more payday loans info at – www.badcreditgoodsolutionsuk.co.uk

Labour MP, Stella Creasy is campaigning for increased regulation of the payday loans industry and believes that there should be a cap on the maximum amount of debt which can be accumulated with a payday loan.  In order to do this Creasy would like the Financial Conduct Authority (FCA) ” to make rules or apply a sanction to authorised persons who offer credit on terms the FCA judge to cause consumer detriment. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.”

Stella Creasy has described payday loan business practice as “legal loan sharking” and that payday loans prey on societies most vulnerable.  While it is true that payday loans are aimed at those with a poor credit rating who are likely to economically worse off than average, payday loans are currently in greater demand than ever.  This is because banks are not willing to lend to anyone with a less than perfect credit score.  There are cases where people need to obtain emergency cash fast and if a bank won’t lend what is the alternative?  Adrian Bailey MP, Chairman of the Business, Innovation and skills committee has stated that, “Payday loans, by their very nature, appeal to those in serious financial need, some of whom will have low levels of financial literacy.”  If this is the case then banning payday loans is not the answer as borrowers are likely to find money through unregulated loan providers sometimes known as “loan sharks.” Until there is more stringent regulation in the payday loans industry there are still a few things which people can do to ensure that they get the best deal on a payday loan and avoid ending up in worse debt.

Payday loans are designed as short term loans which should be paid back when you receive your wages.  With a payday loan the APR can seem very high but this can be misleading as the loan should only last for the maximum period of a month rather than a year or more.  Before you decide to get a payday loan you should take time to do a personal analysis of your outgoings and work out whether or not a payday loan is absolutely necessary.  If it is essential for you to get a loan and a payday loan is your only option you should then work out exactly how much money you need to borrow and keep it to a bare minimum. 

With a payday loan it is generally only possible to borrow for a maximum period of one month although this may vary.  The maximum you are likely to be able to borrow is around £1000 but this will vary.  If it is the first time that you are applying for a loan with a particular company then you are unlikely to be able to borrow any more than £400.  Always keep your borrowing down to a minimum in order to avoid unexpected expenses later on.

Once you know how much money you need to borrow it is worth investigating different lending companies in order to make sure that you will get the best deal.  It is common for borrowers these days to go into high street lending shops such as The Money Shop but this is unlikely to get you the cheapest deal.  There are numerous payday loan lenders and brokers online and most of them should provide all of the information which you need if you are applying for a loan.  Use the representative APR which is advertised as a guide to how expensive a loan might be but also be sure to double check the cost of a loan before you take it out as representative APR may be misleading. APR used to represent the APR of a loan that 66% of customers would have if they replied to that advert, this has now been reduced to 51% of customers.  Make sure you are clear on exactly what you are borrowing and how much you will have to pay back.  It is also important to make sure that there are no extra charges or fees outside the interest which must be paid back on the loan.

If you are worried that you won’t be able to repay the loan and the interest then you shouldn’t get the loan. Payday loans are for emergencies only and are not a long term solution to debt of any kind.  Some payday loan companies will allow your debt to roll over but this is likely to make the loan far more expensive than it needs to be.  There are often penalty fees which you will be charged if you default on a loan.  It really is important to pay the loan back as quickly as possible so that you can avoid any penalty fees or extra charges.

There are numerous payday loan providers on the internet some of which are lenders which means that they can directly lend you the money you need. There are also payday loans brokers and these companies tend to work with a panel of lenders in order to get you a loan. Payday loan brokers can often be more expensive than lenders because as well as the interest which you might have to pay on a loan, brokers may also charge a finder’s fee.  Beware of some brokers who charge a fee for their service whether or not they provide you with a loan.  The best way to avoid being stung by hidden charges is to make sure that you carefully read the terms and conditions of every loan provider before you even consider them.  Once you have found a few loans which seem like they are good value compare the costs and work out which one is the best.  Price comparison websites can often aid you in comparing different loans as the loans should be laid out in a table with all of the most useful information displayed accordingly.

Once you have chosen the loan which you think suits you best double check the terms and conditions before you apply.  Once the money is in your account make sure that you budget for the month so that when the money is paid back you won’t feel too much of a strain on your finances.

If you are looking for a larger loan of over £1000 then a bad credit loan might be available to you. There are bad credit loans of up to £50,000 or more available and they are accesible to people with bad credit.  However, most bad credit loans are secured loans so there is a significant risk involved when you use this method of borrowing.  You will usually secure a bad credit loan with an asset as significant as your house so if you cannot pay back the loan you could potentially lose your home.  If you cannot afford to pay back this sort of loan then it is important to avoid bad credit loans.  As with any loan make sure that you know in detail what you are getting into and what costs and risks are involved.  Read the terms and conditions thoroughly.