Payday loan companies have been in business if the United States for a number of years. The appearance of these companies in the UK has been more recent, but the number of these operations has grown significantly, and continues to grow.
Applying for a payday loan can be quite easy, and one does not necessarily have to have good credit to get this type of a loan. Some payday loan companies require proof of employment, usually in the form of a pay stub before a loan will be issued, but others do not. A typical payday loan in the UK is about £300, and those who use the service take out an average of somewhere between 2 and 3 payday loans a year.
Payday Loan Interest and Fees
In the UK, there are at present no limits on the amount of interest a payday loan company can charge on a loan, and the interest rates are often unbelievably high. In addition, an applicant is usually charged a fee. One such fee is called a broker’s fee. These fees are charged by loan finder services, many of which are located online. Most payday loan offices charge a flat fee of around £25 to advance a loan. Note that when applying for a loan online, the fee charged will generally be higher, often twice as high, than the fee charged when getting a loan on the street at a branch office. A reason for this is there is a higher percentage of defaults by those who get loans online. Another reason is a greater percentage of online applicants are rejected.
In the United States, limits have been placed on the amount of interest a payday loan company can charge. The amount varies from state to state, and a few states have outlawed payday loan operations altogether. In the UK some MPs have introduced initiatives to either regulate payday loan practices more strictly or ban them entirely.
Online Protection
Just as there are online websites that will assist people in getting loans, and charge broker’s fees in the process, there are also websites that will help a potential borrower avoid such fees. These websites often provide additional useful information and guidance at no cost. Another source of protection is the Office of Fair Trading (OTF), where complaints can be taken, although complaints are not often handled on an individual basis.
The Payday Loan Process
The process followed by different payday loan companies will vary from company to company, but typically, when a person takes out a payday loan, the loan company withdraws the amount borrowed, plus the interest accrued, from the borrower’s next paycheck. If the borrower’s paycheck is automatically deposited in a bank account, the lender may require access to that bank account as a condition for lending the money. The lender can then withdraw funds from the account to pay off the loan on the borrower’s next payday. If a borrower only needs to apply for a loan once, and has sufficient funds to pay the loan back the next payday, a payday loan can be quite convenient. If sufficient funds are not available, the borrower can find himself in the vicious cycle of being unable to completely close out a very high interest loan.
Payday Loan Convenience
Many financial institutions offer short term loans when the prospects of the loan being paid back by a certain time are reasonably good, but these same institutions usually charge a higher rate of interest for short-term loans, often called bridge loans. These short term loans can be a source of great convenience to the borrower. Payday loans can also be a source of great convenience. Even though the annual interest rate on a payday loan can be several hundred per cent, and even a thousand per cent or more in some cases, the duration of these loans is usually so short, often a matter of only a few days, that the interest charged is affordable and worth the convenience in the eyes of the borrower.
Truth In Advertising
Payday loan advertisements have a history of being deceptive, which resulted in the regulation of advertisements for payday loans coming under the jurisdiction of the Advertising Standards Authority (ASA). Any complaints regarding what appears to be false of deceptive advertising should be brought to the attention of the ASA.
Payday Loan Comparisons
Payday loan companies have by and large gained a bad reputation for the practices they engage in, and in a great many instances the reputation is deserved. Those who are in debt or experiencing financial distress, a growing number, are those most apt to apply for this type of a loan. Some payday loan companies take advantage of these people. There are also many companies whose practices are honest, though the interest they charge may still be quite high. As is the case with almost any group of similar companies, there is one company that can be ranked as being the best to do business with, and one which deserves the lowest ranking. As mentioned previously, there are websites which allow potential borrowers to make comparisons. By making comparisons it is often quite possible to save significantly on interest and fees. One is also more likely to find a lender who will best fit a loan to an individual’s needs, in terms of the time allotted for a loan to be paid, and the means by which it is to be paid. In making comparisons it can be helpful to have good answers to the following questions:
- Do I really need this type of a loan. Is there an alternative?
- Am I certain I can repay the loan in a short time and repay it without suffering further financial hardship.
- What actions will this company take if I cannot pay my loan off fully or in part when it is due?
- Are there any fees involved that another company might not charge? Can these fees be negotiated?
- Can I avoid allowing the loan company to have access to my bank account, and still receive a loan?
- Who can I talk to who has done business with this company in the past?