Pay Day Loans are essentially cash advances that are offered to people in immediate need of cash. These loans have known to be more inclusive than long term loans, as they are reaching out to a much larger customer base, including people who cannot afford long term lines of credit. These cash advances are usually meant for people in times of crisis or in times of emergencies, where the need for fast and easy cash is needed. The advantage that these long term loans enjoy is their policy of approval irrespective of the credit history of an individual. This is the main reason for their popularity.
Need-to-knows about Pay Day Loans:
Although payday UK loans might tend to look attractive considering the wide product range they offer and the amount they are offering these loans for, one needs to be very careful while choosing these options. Let us discuss some of their features, to enable you to make an informed choice while doing so.
- High Cost and Short Term: Access to these loans is relatively easy, as some people are using these services even on their mobiles, however these very features makes payday UK loans dangerous in the long run. Their easy access should be restricted, so that we realize that these loans are to be used only for emergency purposes and not as a substitute for your income.
- The Role of APR’s: Many industry experts have argued that displaying APR’s can become quite meaningless, as the amount that you might end up paying as APR can be quite in contrast to what has been displayed. Displaying the APR is a legal requirement. Since these loans are borrowed on a short term basis, the rate of interest/fees can be quite high.
- Ability to Repay: It is extremely important to know that if you are not in a position to repay a loan, you cannot afford the loan. This is not to be treated as an additional source of income and since these loans look appealing, it becomes all the more important to understand whether you will be in a position to repay them in the future.
- Roll over Position: Although the roll over option might seem easy, more often than not, if you roll over a loan, the penalty charges and the fees these lenders charge, is much higher than conventional fees and tend to accumulate over a period of time which can sometimes land people into a huge financial crisis.
- Credit Rating: It is a common notion that repaying a payday UK loan can improve your overall credit rating. This is not the case. Pay day loans have separate criteria when it comes to credit rating agencies, it has been found that although it may marginally improve your credit rating, while you’re applying for a mortgage loan, and it does not make a large difference.
- No Credit Checks: Although pay day lenders advertise no credit checks, this may serve as more of a disadvantage rather than an advantage. This means that a lender does think it is important enough to check your capacity to repay a loan, which means that it is not in a position to guide you to manage your finances in a responsible manner. This also implies that if you are applying for another lender, he too is not in a position to judge your lending capacity.
It is a well- known fact that when credit checks are made, almost 60-70 % applicants are turned down in the process.
Future of payday UK loans:
Almost a decade after pay day loans have been introduced in the UK, there has been considerable debate over the future of these loans. They were a popular option post the 2008 crisis, as the cash-strapped economy found the offers to be far more attractive, since most of the financial institutions have restricted their lending capacities. There have been several people lobbying for stricter regulations on pay day loans UK, as surveys have indicated that about 2 million Brits were using these loans for meeting day to day expenses rather than emergency purposes. Following these not so positive developments, certain regulations have been put into place in early 2014.
- The first and foremost step is completely transparency in advertising which includes all the risks mentioned.
- Roll over limit reduced to 2.
- A freeze on interest and other charges where the debt has been extended more than twice.
- Continuous payment authorities have faced strict criticism as it enables these lending agencies to debit money from the borrower’s bank account without any warning.
What it means for the Lenders:
The proposal of these regulations and the following cap on the interest rates has seen many lenders leaving the market. Some highly profitable lenders like Wonga and payday UK have resorted to more transparency in their process, and have introduced rigorous checks in their application processes. There is a need for the lenders to be more customer-friendly and companies like Pay Day Uk have adopted measures which have led to responsible lending. Let us discuss some of the changes they have made in the process.
- No lending to students or minors.
- Doing a thorough check of the applicants to see if they are in a position to repay their loans.
- People with debt problems are a strict NO.
- No dealing with people whose identity is questionable.
Companies like payday UK have been responsible in their lending policies and have ensured that customers are fully aware of the limitations and risks involved with pay day loans. Their application procedures have also become more stringent ensuring that the applicants are in a position to repay the loans within the stipulated period of time, preventing any defaulting on their part and in turn maintaining a certain amount of credibility. This builds confidence in the minds of the customer, as he feels that the lending agency is more interested in guiding them rather than taking advantage of their poor financial conditions.