Short-term lending is not a new concept, but its applications that we come across are the spawn offs of a technological revolution that is still underway.
A Payday Loan, the most talked about element of short-term lending is not an exception to it as well. These loans are convenient for specific needs and untimely financial requirements of our lifestyle.
It is widely accepted and used across the nation for a variety of purposes and needs. According to a report by the Office of Fair Trading, the payday loan market has shown a commendable growth. From 900Mn GBP in 2008 to 20Bn GBP in2012 and 2.8Bn GBP currently, these leading figures of a payday loan speak for itself.
Also, when you come across a financial emergency, it can be critical in nature. Such things fall upon you uninvited and disturb the whole flow of budgeting strategies in place. Well, when you need funds in the middle of a month and all your resources cease to exist, a Payday Loan can help the cause.
Once in two months, 1 out of 10 people borrow money from the near ones to sail through the next Payday. Gone are the days when borrowing and lending were uncommon and perceived to be a bad practice. And it is more popular among the younger generation of Britain, as the major portion of its customership, a staggering 53.4%, is occupied by people who are 23-45 years old.
According to the Competition and Markets Authority, there were about 1.8Mn Payday Loan customers in 2012-13 and as per an estimation by the FCA, 1.6Mn customers took out around 10Mn loans in 2013.
Amid conceptions and speculations about this product, many of us are unaware and afraid of these utilities. We think of it to be unsafe and unregulated. I would answer all these questions that you have in this article and would try to help you understand it further.
The Concept behind a Payday Loan
When you need funds in the middle of a month and you know that your pay-day can suffice but not soon enough, a Payday loan is to be looked upon. This form of unsecured short-term loan provides funds for a short period of time. A payday loan is to be borrowed till the next Payday you have, and hence the circle completes itself. You can seek this loan any-when you want and you pay it back on the next Payday.
It is usually for a smaller amount and for a relatively higher rate of interest (urgency costs a bit), but it has proved its worth and convenience it entails in the previous decade. A Payday Loan is without a guarantor or collateral. And when obtained via regulated loan brokers like Loan Princess, it does not even harm your credit score any further with a soft credit check for assessment (it does not leave a footprint or hamper the score anymore). However, a hard credit check is still imposed by the lender while finalising the loan you choose.
Is it safe to obtain a Payday loan?
Apart from spreading love and gratitude, nothing is safe in this world. Obtaining a Payday loan is nothing more than a simple borrowing process, and all such things come with responsibilities to fulfil and rights to protect.
Many citizens of Britain think of a Payday loan to be a financial trap. Even the media and social platforms criticize it regularly. But they are safer than we think of them to be, with certain parameters being fulfilled and for an apt purpose or need.
So let me tell you a few things to keep in mind for a safe Payday Loan in the UK.
Indeed, it is Safe When it’s from a Regulated Source
A Payday Loan when obtained from a regular source of lending, is safer than you want and need it to be. With such an association and overlooking authorities by your side, you’re sheltered from a number of financial atrocities that loom over your vulnerabilities. All regulated lenders and loan brokers are bound to follow the rules and regulations imposed by the FCA. These rules and regulations make sure that your financial well-being is always kept in the mind of a lender while dealing for such things. They can impose heavy fines and even take substantial actions if these directions are seen to be ignored or breached upon. In addition to the strict governance from their end, you even get access to Financial Ombudsman services, a governmental body appointed for catering to the complaints and feedbacks of consumers. If you feel that you have been harmed financially and if you think that you’ve been defrauded by these regulated lenders, then you have someone who would listen to you, the name is Financial Ombudsman Services. So with a regulated lender, it is a good source of money.
Automation Brings in More Transparency and Security
The process of obtaining a Payday loan is usually initiated online and is completed within this medium as well. Most of the Payday lenders and Loan Brokers operate via online interfaces and the whole process is more automatized than in the previous years. The decision making and analysis systems are more transparent and provide timely prompts and requests for permissions whenever there is the need. All this adds up to make it a fool-proof system of obtaining Payday Loans in the UK.
While talking of transparency I would add, that with a fixed APR (Annual Percentage Rate: Interest Percentage Per Year) component, what is shown to you initially is what you get. It is more transparent and secure in the ways it is handled by a regulated source. Many unethical and unregulated loan sharks would display a lucrative APR initially and the real deal will be forced upon you in the aftermath, which might not be as comforting as it seemed.
But with a regulated lender, you do not fall prey to such things. These lenders would tell you exactly what they’d provide. And you can rest assured about such things with them.
Capping Mechanisms Made it Better
Few things in life carry the potential of turning the tables for you. As a result of an investigation held by the Competitions and Markets Authority, CMA, followed by a separate investigation by the FCA in the same year, capping on the Payday Loans was introduced in 2015.
According to this cap, a borrower is liable to pay up to 0.8% of the loan per day as interest and a maximum of 100% of the loan as fees and charges. Also, in case a borrower is unable to repay the loan on time then the default charges cannot exceed 15GBP. After a number of complaints against these loans, these strict regulatory steps became mandatory and the effects of these regulations have been visually eminent. The FCA is considering capping as a solution for making other high-cost credit sources affordable. Such things change the way we think and open new possibilities for taking up other discrepancies and challenges.
These and other things that are required from your side of the deal make it to be a good opportunity and a utility instead. Yes, even you have different roles to play, like budgeting your expenses before taking up debts, handling these finances responsibly and taking out these loans only when it’s absolutely necessary. It is the key to a helpful and ideal usage of a Payday loan.
So the answer is yes, it is safe enough. It is comparable to most of the other unsecured classifications of borrowing. And a Payday loan would stand straight and firm on the scale of being safe for its consumers.