Instant loans are a means of borrowing a small sum of money repayable over a ‘short’ period. Unlike bank loans or credit cards which can offer periods of repayment which extend over several years, these loans are completely different. Instead instant loans offer a facility which is specifically designed to be repaid over several months and this is due to sums of money which are available for application. An instant loan can range in value from as little as £50.00 and in the case of some lenders, as much as £750.00. The amount which can be approved will be dependent on a few different factors, with the average amount borrowed being in the region of £300.00. Lenders of instant loans operate within the short term borrowing market and therefore can be defined as being short term & high cost borrowing choices. As this information suggests, these types of loans are not designed to be used for large scale or long term financial requirements.
Instant Loans and their Repayment Format
The purpose of instant loans will in some respects vary from customer to customer but their core function is that of assisting with short term financial concern. This could of course mean a number of different reasons but some typical examples include the following. An instant loan could be considered when an essential home appliance breaks and is need of repair, for example a washing machine. Similarly an instant loan could be used to cover the cost of a one-off car repair as another example. The point here is that these ‘type’ of costs are not likely to reoccur month after month and therefore could be managed via the use of a short term borrowing option.
In terms of how the instant loans product works, this will vary slightly from one lender to the next. That said all instant loans lenders are regulated by the Financial Conduct Authority and therefore are required to offer their products and service within very specific and customer focused guidelines. Those lenders who do not do so, are unable to trade within the market. Furthermore, to monitor such activity the Financial Conduct Authority assesses and individual authorises every lender. The term of repayment offered by any given lender will often be dependent on the amount being requested, although there will always be a good selection of terms. Normally lenders will often a selection of terms meaning perhaps repayments to be made over 3, 5 or 6 months for example or a short overall term such as 1, 2 or 3 monthly instalments. The key is flexibility and choice and this is best delivered via the offer of several different repayment terms as well as loan amounts. Instant loans lenders are keen to ensure affordability is key to each and every step of their application process and this will be evident in any application which is progressed.
Short term loans come in a range of different sizes and repayment terms. The modern day lender of such loans aims to deliver a resource which is not only flexible but also considerate of the realistic needs of the modern day consumer. Where things have changed in this market is fundamentally down to a new regulating body who is responsible for the overall operations of the lenders. This new regulating body is the Financial Conduct Authority (FCA) and since they were introduced a few years ago, the marketplace has been completely transformed. Not only do lenders now have to be FCA approved if they wish to offer lending options but the options they do offer need to meet the rules and regulations newly set out by the FCA. This means as consumers we can be confident that any of the lenders we consider, they will effectively have the FCA’s backing in terms of both product and service.
Terms of Short Term loans
In order to help ensure the product being offered is truly flexible, short term loans lenders offer choice when it comes to how their loans are repaid. This can be delivered thanks to the introduction of instalment based repayments. This means when applying for these sort of loans it is likely you will be presented with a selection of different repayment terms. This could mean for example, repayment split over 1, 2 or 3 months for example or could mean 3, 4 or 5 monthly instalments. Depending on the loan amount being requested it is not uncommon for short term loans lenders to offer repayment terms up to 6 months and in some cases beyond this amount of time. Quite sensibly the more that is being requested to be borrowed will result in the longer repayment terms being offered.
Take for example a £500.00 short term loans lender. Given that often short term loans are granted for average loan amounts of £300.00, a larger loan amount as with this example may mean longer repayment terms. Whereas for many of us repaying £500.00 as a single repayment, when interest is accounted for, is most likely a too costly option, making a number of pre-agreed monthly instalments at a lower rate is likely a sensible choice. Of course for those of us only looking for a £100.00 short term loans lender, it may be that we have the resources to repay this level of borrowing, with the interest payable, as a one of payment. So the term of repayment being offered by any short term loans lender will have the loan value directly in mind. As well considering the loan amount being offered, short term loans lenders will also take into account an applicant’s ability to afford the requested loan. This means viewing information available from Credit Reference Agencies as well as budgeting information supplied by the applicant at the point of applying. A collective understanding of all of this information is ultimately what allows lenders of short term loans to make an informed decision regarding any submitted application.
Thankfully nowadays payday loans come in lots of different shapes and sizes and this means as consumers, we have plenty of choice and flexibility at our disposal. Whether we are looking to borrow £100.00 until pay day or £500.00 for a longer period of time, there is likely to be an option to fit the need. Payday loans are not designed to be used all the time and instead are most effective when used as intended; for short periods of time. The name given to these type of loans is not coincidence and in fact the name ‘payday loans’ is very finding for the type of product on offer. Payday loans do what the name suggests and allows us to borrow until our pay date in simple terms. With this in mind it is easy to see how they vary from more traditional ways of borrowing money. Take for example a bank loan, available from a host of different high street banks, these can often be offered to consumers over a number of years’ worth of repayment and furthermore can reach values way up into the thousands of pounds. Clearly consumers needing to borrow these sort of sums would not benefit from the resources offered by payday loan lenders.
Best Repayment Term for Payday Loan
One of the most important considerations before taking a form of payday loan is whether the reason for borrowing matches the resource which is ability. As discussed above payday loans are not designed to be used as an on-going resource and therefore will not be useful to all consumer needs. Instead if you are looking to cover a short term financial short fall, payday loans can prove to be a useful resource. Take for example a broken washing machine or the requirement for a new car tyre. These are the type of costs which can arise from time to time but will not continue to be a financial concern month in and month out. If, however, there is a financial cost which is likely to occur regularly, it would be more suitable to consider the resources of a larger and longer term loan product; for example, a credit card provider.
So assuming there is suitable reason for borrowing, matching that of the resources offered by payday loan lenders, it is next important to select a repayment term which is sensible and realistic. This means not over-committing yourself financially in terms of the repayment amount agreed to. Given that payday loans can be repaid in a number of ways, there is plenty of different ways in which the repayment amount can be amended to fit your budget. Payday loans are often offered over a range of terms, whether this be 3, 5 or 6-month repayment terms or 1, 2 or 3-month repayment options for example. This means the repayment amount can be increased or decreased on a monthly period depending on the overall period of repayment which is decided upon. Therefore, it is very important to review the options and make an informed lending decision.
If anyone is needing to borrow money and has then submitted some form of financial application, they then may be curious as to what happens during their application next. This may vary of course depending on the lender that is chosen but most of them will carry out very similar checks before they reach an overall lending decision. There can certainly be a high number of different factors that can contribute to the lending decision and these will be explained below in further detail. I will also explain the three main application stages for when people are applying for loans through direct lenders.
The first part of most applications through direct lenders would be the part where a potential borrower has to input their details regarding personal information. This is when someone will be asked to fill out information regarding such things as their full name, their home address, their date of birth as well as often their employment details. They can then also be required to complete a section that asks for both their bank and their card details. All of this information will be required before any lender can reach a decision on the finance. In certain cases people can then be requested for documentation in order to get something progressed further. This can be to validate something or confirm something as requested from that lender. For instance maybe a utility bill could be requested to provide someone’s address.
Finance Through Direct Lenders
Another common stage on every direct lenders application will be the credit check on the person applying. Any lender will have to calculate the chances of the borrower repaying the debt back once they have taken it out. They can normally have access to the person applying credit files and they can then use this information to see how they have fared with repaying other debts in their past. They will never be able to know exactly whether a person has the intentions to repay the debt but they can work out the likelihood of this being done. If someone does have bad credit and a low credit score as a result they can then possibly find it tough to get finance approved. Some direct lenders however, having said that might still be able to help them get finance.
The final stage on every financial application will of course be the final decision. This is when a borrower finds out whether or not they have been approved the finance. If they are accepted they can then often quickly liaise with the lender and see how long it will take them to obtain their short term loan or other finance type. If however, on the other hand if the person is declined then should they wish to, they can then move on elsewhere to try and get the finance approved by another lender. There can be a high number of different factors that can go into the final decision including things such as credit and affordability checks. Once the lender has reached their decision they do not have to justify it and they could just say unfortunately at the moment we as a company are unwilling to lend.
Payday Loans are essentially cash advances that are given to people who are in urgent need of cash. This is vague, as it does not clearly define the pre-requisites very clearly behind being eligible for such a loan. The pre-requisite for applying for such a loan is a valid ID proof and other basic documentation which facilitates the entire process within minutes. This is something that has attracted many people towards these loans, as this is their main feature. This also happens to be one of the main reasons why people are so dependent on these loans, as they are extremely easy to access and unlike other financial institutions; they do not pay emphasis on your credit background or do not do a thorough check on your affordability.
This is the primary factor behind experts being extremely critical of these payday loans and many of them have gone to the extent of claiming how there are many alternative financial products available in the place of payday loans and why installments are better. There are many products available in the financial world and payday loans have given rise to a class of loans which are distinctly different from the rest of the financial products that we know of today. When one understands payday loans in the commercial sense, they are regarded to be uncertain financial instruments because of the risk that they carry in terms of their repayment terms, their high interest rates and the time period associated with repaying a loan. A simple example of a payday loan would be a person taking out a loan for 375 pounds and ending up paying close to 500 pounds at the end of 14 days. Now, for a period of just 14 days, this is a huge amount and the demographic these loans have been targeting are people with a low or absolutely no stable source of income, single income parents who cannot afford their children’s education or teenagers with a valid ID working somewhere, looking to make some extra cash. There are several problems that these payday loans can pose, apart from leaving a permanent dent on someone’s source of income.
Apart from the financial debt trap these loans can bring you into, these loans also have the capacity to affect your social status which can then lead to bigger and more severe problems in the future.
- A teenager without a stable source of income being eligible to apply for a loan, with some extra cash in his hand will lead to larger issues that a parent might have to deal with. He may spend the amount recklessly leaving the burden of repayment on the parent, which could then lead them to take another loan to repay the previous one.
- A single income parent who cannot afford to pay for her children’s education gets lured into this attractive looking financial product without fully understanding the implications of using such loans, this can partly be blamed on the payday lenders as they have not been responsible with their advertising by refraining from putting out the necessary risks involved with using these payday loans. A single income parent might take out this loan once, mostly to pay off her bills which will give rise to more expenses as she will need extra cash to pay off the loan she has taken.
- The population that is using these loans for emergency purposes, such as in the case of an emergency car repair work to be done might benefit from these loans but these people represent a minority of the population that is taking out these loans on a regular basis.
There are several alternatives to payday loans and one of the most important ones to be discussed are none other than installment loans and to end the madness behind payday loans and why installment loans are better.
- Installment loans carry a much lower interest rate than in the case of payday loans which is an automatic advantage that these loans may have over payday loans. A low interest rate means the original amount that one has borrowed will not greatly differ from the amount at the end of the loan period.
- Installment loans also have a fixed rate of interest which means it is simpler to identify your expenses over a period of time and calculate your expenses at the end of the loan period. Knowing how much you will end up paying and knowing that you do not have the burden of fluctuating interest rates automatically reduces the threat these loans may have on your bank balance, as it will give you a chance to forecast your expenses.
- Installment loans essentially mean that you are required to pay equal amounts every month for a considerable amount of time. This has a major positive impact on the borrower as one has the ability to understand how he/she has to manage their expenses on a monthly basis. If you a responsible borrower, you will keep your savings aside for your loan in addition to your normal day-to-day expenses.
- Installment loans also carry much lower penalty charges or fines associated with non-repayment of loans, certainly with no comparison to payday loans. There are certain financial institutions that do not carry any penalty charges or fees.
All in all, it is important for a borrower to know that there are alternatives to payday loans that are available. Financial institutions also need to be more inclusive in their approach by introducing such loans to all kinds of people, ensuring a proper background check. The more the banks start adopting this approach, the more smaller institutions will follow suit and we can strive towards a financially more stable economy. Installment loans have been encouraged by all experts and there needs to be a greater emphasis that is to be laid on the introduction of such alternative products. Once installment loans are given the attention they need to get, the dependence on payday loans will drastically reduce.