What are Payday Loans?
Payday loans can be described as short term loans which anyone with a stable source of income is eligible to apply for. What makes these loans popular is the fact that it is extremely easy for the loan to be approved and it caters to a wide range of people, who cannot afford long term loans. These loans are usually meant to be paid back within 2 weeks to a month with an APR (Annual Percentage Rate) that can go up as high as 1000 %.
Bad Credit Payday Loans
The History of Pay Day Loans:
Before we dwell into what bad credit pay day loans really are, it is important to understand how this movement started. This was a phenomenon that owes its origins to the land of the US and has been a practice that was adopted as early as the 1800’s, mainly for the blue collar workers who were finding it difficult to make ends meet. This was an unregulated practice which led to dubious means of collecting money by collection agents, which called for a regulation of the industry. After several legal battles, the decision was made to not have a standard interest rate but a situation where the home state could decide the interest rate. Naturally, lenders saw more opportunity in states where the rules were more relaxed.
This practice was replicated in UK in the 1990’s and since then, has grown into a billion dollar industry.
What are Bad Credit Pay Day Loans?
The next obvious question one would have is who is eligible for these short term loans? Anyone who is above 18 years of age with a source of income is applicable for these loans, irrespective of the credit history of the individual. This means that even if you have a bad credit, your credit worth on the day that you apply for the pay day loan is taken into consideration and on the basis of an affordability analysis to test whether you are capable of paying the loan within the stipulated time period; your loan amount is approved.
Advantages of Bad Credit Pay Day Loans:
For those of you who don’t have a talk-worthy credit history, short term loans are the most viable option for the following reasons:
- These financial institutions make a more unbiased assessment of your credit worth, as compared to conventional banks.
- The application process is fairly simple and easy to understand, which makes the experience more satisfactory with the customer.
- These institutions are also responsible for improve your credit worthiness by guiding you through the entire process and showing you proven methods of improving your financial acumen.
- Since these institutions are linked to many banks, if you have been a bad creditor in the past and have repaid your pay day loans on time, that information is passed on to the credit agencies and in turn the banks you have been previously associated with.
Bad Credit Pay Day Loans are becoming increasingly popular in the UK and has faced staunch criticism against the practices adopted by these lending agencies. It becomes all the more important to understand both aspects to this, especially for bad credit borrowers so that they are in an informed position. There are some points one should remember in the case of Bad credit pay day Loans.
- Before applying for any pay day loan, one needs to know the cash repayment practices adopted by the lending agencies.
- One needs to do a thorough research on the lending agency they are opting for and this should be done through sufficient number of back ground checks, comparing reputations in the market, speaking to customers who have used these services in the past and so on.
- It is also imperative to understand why exactly you need the loan and it is always advisable to do it only in the case of an emergency, as this should not be treated as an alternative for fast and easy cash.
- You should do a thorough analysis of your own to ensure that you will be in a position to repay the amount fully, with the interest within the time mentioned.
Reason for Regulating Pay Day Loans:
It has been understood that there is a need to bring these pay day loans under strict regulation since there have been a certain degree of fraudulent practices that have been adopted by these lending agencies. It has been observed by many agencies that this, rather than becoming an emergency cash mechanism, has become a means to substitute for no cash. A recent survey showed that only 16% people used these services for emergencies. A majority of the people were using it to supplement their income.
There was another interesting fact that came out during these findings. A majority of the people borrowing from these lending agencies were requesting for an extension of their loans or rolling over their loans, giving rise to huge interest rates as well as loan fees.
Another thing that was observed was the fact that there were numerous lending agencies in the market which were not adopting fair practices when it came to educating the customer about their repayment options, their hidden costs and how they should go about building their financial credibility, which furthered the need to be well informed about these agencies that were ruling the short term loan market.
It is important to consider all your options before you go in for a pay day loan such as this. Although pay day loans do have their benefits when it comes to serving your needs in times of crisis, there needs to be a clear distinction that needs to be made between crisis money and replacement money. This method should not be used to supplement the cash or replace the cash that you have, and we should be completely aware about the consequences of bad financial management. Loan money has a way of piling up and it is better to clear your debt before you incur more.