Three Shocking Facts about Payday Loans

Payday Loans

Traditional borrowing avenues aren’t always available when you most need them. Conventional institutions like banks will usually require you to pass through a whole lot of red tape before a loan request is approved. 

Options like instant payday loans ensure you can get an immediate source of funding, allowing you to address any financial emergencies that might pop up out of the blue. 

What are payday loans? 

If you’re ever in a fix and don’t have an immediate source of cash that you can dip into, a payday loan can be the best means of addressing your problem. The loan allows you to borrow against your next paycheck, meaning you can automatically qualify for financial assistance as long as you have a job. Payday loans don’t typically go past a month because of the nature of the payment structure involved. 

Those who are unfamiliar with the elements of payday loans might have some doubts about the opportunity when lacking sufficient information. Payday loans are designed to offer you instant cash upon request. 

The lenders take a gamble on the fact that you won’t get fired between the time they give you the money and the due date for repayment. Because of the high risk that comes with the territory, the amounts on offer don’t usually involve significant sums and rarely surpass the expected income of the borrower. 

Unlike traditional lending avenues, payday loans offer their services to a wider audience, including people whose credit history wouldn’t qualify them for a conventional loan. 

They are defined as unsecured personal loans because you don’t need collateral to qualify for financial assistance. In most cases, all you need to provide is a recent paystub and your personal information to qualify for approval. 

Some little-known facts about payday loans that most people might not be aware of include: 

There is a limit to the interest rate charged by a lender

Payday loans are usually taken by people in dire straits and in need of immediate help. Taking advantage of the situation wouldn’t be an ethical business practice and the industry is regulated to ensure that doesn’t happen. A cap of 0.8% per day has been placed on all lenders operating from the UK. 

Penalty fees have also been capped at £15. If you’re struggling to meet the due date and have to default, you’re assured that the fees involved will not rise through the roof. Regulations also state that the fees charged should never exceed the initial amount borrowed. For instance, if you borrow £50, the interest rates and potential penalty fees charged should not pass that amount. 

Payday lending is continually experiencing regulation improvements 

One of the major worries for people thinking about a payday loan is the regulation involved with the practice. Financial contracts are a binding factor and it’s important to know that a company’s activity is under legal scrutiny by the government. The Consumer Credit Act of 1974 states that payday lenders must receive a license from the OFT (Office of Fair Trading) to establish their operations. 

The OFT is responsible for judging whether a lender involves malicious practices in their operations. Government regulation ensures that payday loans maintain fair and just interactions with their customers. The Consumer Credit Act was readjusted in 2006 to ensure the OFT holds the authority to stop irresponsible lending in the country.  

An OFT review published in 2010 considered the high-cost credit involved with some payday loans, portraying the role of the government in considering borrower’s needs. Comparison sites have also been established to help people choose between different lender rates. The UK has also banned payday loan ads whose repayment period was 60 days or less. 

Few payday loan lenders are based in the UK 

Established payday loan lenders in the UK are one in a dozen. There are about 40 to 100 lenders based in the region, but that presence has been complemented by hundreds of online lenders in the industry. The number of lenders has been predicted to rise due to the financial crisis brought about by the COVID 19 pandemic. 

Despite the numerous choices available online, choosing a lender based in the UK can enhance your chances of approval. Some online lenders might simply represent one-man bands that have been hastily registered to take advantage of people in need. Established lenders in the UK remove the risk of being conned by people looking to exploit your financial situation. 

It’s important to take your time when considering the best lender to meet your current needs. Different lenders offer varying interest rates and payment structures. Taking the time to read the various clauses that come with a particular payday loan agreement ensures that you’re not caught in a disadvantageous position because of choosing the wrong partner for your financial needs. 

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