In this article, Loan Princess looks at the risks associated with taking out short-term loans and payday loans. Over 4 million of them are taken out every year in the UK so they’re certainly what could be called “established” – just as established as credit cards, store cards, and other types of personal loans.
If you borrow any money today, you will, of course, be expected to pay it back with interest by a date you agree with your lender in the future. So, if you’re short of money today so much so that you need to take out a loan, you need to be certain of where the money is going to come from with which you’ll repay the lender in full and on time.
Remember that, when you pay the loan back, you’ll be worse off than if you had not taken it out because you’ll have had to pay the interest back on top of it.
Before you commit yourself to a loan, are you sure that your income will remain reliable and stable so that you’ll be able to make the repayments on the dates due? And if your income remains stable, will you have to spend less each month between now and the final date of repayment in order to be able to afford the interest on the loan?
Short-term loans online and payday loans should only ever be used in emergencies to cover an unexpected expense that’s come out of the blue like getting your car repaired or fixing a faulty boiler. You should take out the money over the shortest space of time possible because that will reduce the level of interest you pay on your loan.
“Spiral of debt”
Why it’s really important that you have a clear path in your mind about how you’re going to pay back your loan in full and on time so that you don’t end up in what’s called a “debt spiral”. The term “debt spiral” describes the type of situation where you take out one loan to repay some or all of another loan. While it is possible to keep all the balls in the air for a while using this approach, sooner or later, you will run out of wriggle room when finding new loans. When you reach that point where no lender wants to work with you, you will have a load of loan repayments due that you have no possibility of meeting.
It’s similar to the situation when a customer is constantly overdrawn at the bank – there are two million overdraft “prisoners” in the UK according to leading debt charity StepChange. The problem for these two million bank customers is that, if their bank decides to withdraw their overdraft without giving their customer enough notice, they have no way of being able to pay it back and to keep their family finances afloat.
If you feel that your debt is getting out of control, please do not take out another loan because you may, for the best reasons, be turning a bad situation into a terrible situation. Please contact one of the following debt charity or advisory services as soon as you can:
Their services are free.
Short-term loans are expensive
Short-term loans (including short-term loans for students) are expensive – even if promotional rates are attached to a lender’s particular offer.
You should look for other ways to access the cash that you need prior to applying for a short-term loan or a payday loan.
The short-term loan market and payday loan market in the UK are enormous and they’re a magnet for scammers who prey on the temporary financial and personal vulnerability of borrowers. It’s harder than ever to tell the difference between a proper lender or borrower and a scammer so the team at Loan Princess through that this would be a good time to share with our readers our top tips on keeping safe:
Check the company’s website address
Look at the web address which appears in the address bar on your browser. Does it start with “http” or “https”? “https” means that the website is secure so you should never enter your details into a site whose address does not start with “https”.
Check for membership of or licensing by the Financial Conduct Authority
All legitimate UK lenders and brokers must be members of or licensed by the Financial Conduct Authority (FCA). The FCA is there to make sure that lenders follow the rules which, for payday loans and short-term loans, are strict. The FCA is on your side.
You can check FCA status straight away by looking for their details on the Financial Services Register.
In May 2018, laws surrounding the handling of personal and financial data changed to become much more strict. These new laws, enacted in every EU country including the UK, were the General Data Protection Regulations (GDPR) and, even when Britain leaves the EU under whichever deal we strike with the trading bloc, GDPR will still be the law of the land in our country.
Make sure that you’re happy with your lender’s privacy policies – read them before you enter any details so that you are assured that your sensitive personal and financial data is handled in the correct way. All industry-standard lenders and brokers jealously guard their customers’ privacy and you should be happy in your own mind that you trust the company you’re choosing to deal with.
Have you received an unexpected call from a “lender”?
If you receive an unsolicited call from someone purporting to be from a payday lender or short-term lender before or after you’ve taken out a loan, you should take extra care.
Refuse to give over any personal information or account information – ask them for a number that you can call them back on. Before you do call them back, visit the company’s website to check to see that the number you’ve been given is a legitimate number.
Anybody offering to lend you money who isn’t licensed or regulated by the Financial Conduct Authority is doing so illegally. Loan Princess is regulated by the FCA as are all the carefully-vetted lenders on our panel.
Never borrow money from someone who is not regulated – they may be criminals, they may use threats and intimidation against you to make you pay, and there are no statutory controls on the level of interest they charge – many of them up interest rates once you’ve taken a loan out and there’s nothing you can do about it.
Financial Conduct Authority licensees like Loan Princess
There are risks in any type of finance and there are certainly risks in taking out payday loans or short term loans.
If you are certain that you can repay the loan and the interest, if you’re happy with the company we point you in the direction of (we’re a broker, not a lender), and if you’re not using this loan to pay off another debt, apply for your new credit facility via Loan Princess.
The process is quick and simple – please click or press here to start. Our service is completely free of charge and you’re under no obligation whatsoever to accept any offer we find you.