People make use of payday loans for a range of immediate needs. They are therefore, quickly becoming a good option, especially after the credit crisis that appeared in 2008.
Nonetheless, there are a number of important factors that define these loans. These can be used to learn more about payday loans. Here, we start by describing some important facts concerning payday loans and then, will shed light on the uses of this particular loan type.
History of Payday Loans
Payday loans came into the modern financial market when a need was recognised for a financial product for lower level communities. There was a need to save people from the traditional pawn shops by serving them better products that are governed through laws and regulations. Thus, modern payday loans first appeared in the United States, but they quickly found their niche in other countries such as the UK.
Payday Loans in the UK
Payday loans have quickly gained financial prominence in the last few years. The number of people that are using these loans is increasing every day. These loans are essentially taken by people that have low annual income, which is mostly below 25,000 Pounds a year. This means that it is especially a product designed to attract people that belong to the lower segment of the community. The total business sector of payday loans has already entered a value in billions of Pounds.
Payday lenders are not bound in the UK to have a specific interest rate and this allows them to charge hefty amounts of interest if we compare the percentage with other short term loans. Recently, the situation has improved as the authorities are now more vigilant regarding bad practices undertaken by lending companies.
Laws Governing Payday Loans
New laws have been released in the UK as of 2014 that govern the matters of payday loans. These laws ensure that loans are only provided to individuals that clearly show the ability to return them. These laws also put a maximum limit on the additional amount that can be obtained on a payday loan.
There are also guidelines for lenders that ensure that borrowers are completely informed about various aspects of these loans, and the risks associated with them. Here are a few important aspects of these laws:
- A maximum of 24 Pounds can be received by a lender on a borrowed amount of 100 Pounds, if taken for a period of 1 month.
- Similarly, 11.20 Pounds are allowed as a maximum interest to be collected on a hundred Pound loan given for a period of two weeks.
- Another important law limits the annual additional charges to remain capped at one hundred percent. This means that a lender cannot ask for more than Two Hundred Pounds for a loan of One Hundred Pounds for the whole year.
Online Payday Loans
The online world houses numerous lenders that provide payday loans. These online lenders operate swiftly and can be used by people to quickly receive funds within a matter of an hour or two. Their credibility can easily be judged by looking at the reviews posted by the previous customers as well as by visiting blogs and online forums.
There are many brokerage firms present in the industry as well that help the customers reach the most suitable payday loan service. They may do so by charging a small upfront fee known as the broker fee. There are also many brokers who do not take a fee from the borrowers. Rather, they take their cut from the money lenders, who pay them for bringing customers to them.
Brokers can be excellent, especially for new borrowers. They help them prepare documents and information in the right manner which ensures that their lending applications as approved with success. They usually have helping tools that allow people to understand their financial position better and only take out loans that they can easily afford and payback in time.
Important Elements in a Payday Loan
There are some important elements that are attached to a payday loan. A payday loan has a principal amount, as well as the interest and the attached fee. Because these loans are meant to be returned in a short time, lenders often use the term of service fees for taking interest on the loans. There are also penalties and recurring costs attached with these loans.
The APR (Annual Percentage Rate) does not hold much value for these loans because they are now capped at a maximum of 200% for the whole year by the relevant authorities. The time period of the loan is also an important element. These loans are mostly taken for either 14 days or a complete month. The applied fees are almost the same regardless of using different lenders and only the other conditions are slightly different.
Uses for Payday Loans
Payday loans can be ideal for people who are looking to quickly make an important expense. They only provide a small amount of money though, and therefore, are most useful for small needs, especially for people with a low income. Here are a few of these uses.
- Payday loans can be used to pay the instalment of an important debt that otherwise will become overdue. This increases the debt greatly because of the implication of penalties. It is best to pay the sum through a high interest short loan rather than risk getting into a situation of bankruptcy.
- They can also be taken to pay educational fees on time. Students can also use payday loans when they especially have to pay different expenses that may appear out of nowhere during the course of their studies.
- These loans can also be used for paying the rent or for buying the groceries if a person is receiving the wage a little late or if such needs have come up before the next paycheque.
If you are taking out payday loans, then you can easily use the important tools available at https://paydayloans.quiddicompare.co.uk/ in order to ensure that you are able to select the best available lender in the UK.