Payday loans refer to the small loans that are often under the limit of 500 Pounds and provided for a period of around two weeks. They are usually attached to high APRs (Annual Percentage Rates), but are designed to be returned on the next payday as the name suggests. These loans have recently become popular in the UK in the last decade and many lending companies have started giving these loans.
Here, we describe some of the important elements related to the immediate history of these loans and how they have quickly become popular among people of lower income levels.
Modern Revival of Payday Loans
Modern payday loans first appeared in the United States and gradually reached the UK. These loans have especially become popular in the last ten years. According to a study, there were over one million people in the country who took payday loans in 2009. The lenders are working with this fragile product, because they charge the premium amount of interest which is governed by the recent changes in the financial rules regarding payday loans.
The New FCA Rules
The Financial Conduct Authority (FCA) introduced new rules by the end of 2014 for payday lenders. These rules urged lenders to only give loans to people who show a good ability of returning these loans. The rules also stated that lending companies could only charge a maximum of one hundred percent interest or fee on the amount of the original payday loan.
The rules also stated that lenders could not charge more than 15 Pounds as fixed fee for these loans. There was also a cap introduced for daily interest rates of 0.8 percent. These rules meant that although fewer people could access the loans; the risk for the lenders is greatly reduced. And the consumers are also free from unfair trading practices.
All lenders looking to work in the field of credit industry need to obtain a working license from the Office of Fair Trading (OFT) in the UK. The Consumer Credit Act in the country ensures that OFT only approves of lenders who have not been involved in unfair lending practices, such as multiplying the interests and charging hefty penalties.
Advertising for these payday loan lenders is also governed properly by the Advertising Standards Authority (ASA). ASA often receives complaints regarding these lenders and resolves them by ensuring that these companies properly advertise the risks and penalties included with payday loan products.
Price Comparison Websites
There are many price comparison websites such as Quiddicompare that are servicing the consumers, who need to access payday loans. These comparison websites are truly performing a wonderful job in terms of highlighting the important components of these loans. Consumers can learn more about the loans available from different sources and easily make a comparison among them to find a suitable lender.
Consumers are also able to compare the different options for their credit needs at these comparison websites. These websites also contain links to the different lenders and prospective borrowers can directly reach the websites of the lenders that they like. They can then get the best payday loan deals, and not get affected by reaching just a single source that offers similar products.
Payday Loan Brokers
There are also many brokers out there that contact people looking for these loans and bring them to the companies that provide these payday loans. These brokers used to take money from the lenders as well as the borrowers, but these days brokers are only taking their cut from the lending companies. Brokers are now actively looking for consumers in order to earn monetary benefits.
Problems with Payday Loans
There are many problems that are attached to these payday loans. The most important problem with them is that many people with low income access these loans and then get attached to the concept of taking these loans regularly rather than improving their spending patterns. Here are a few of these problems.
People with bad spending habits often find payday loans as a means to find the credit when they have run out of their money. The bad habits mean that they once again require a payday loan just after a few months. These people do not take these loans due to dire needs, they do so to cover up their poor choices in terms of spending the available finances. Payday loans should not be directed to these people and new rules ensure that such people find it harder to get the loans.
Payday loans can quickly balloon out of proportions when not returned on the first payday. This problem causes many people to fall into financial problems and pitfalls. The ballooning nature of these loans is now much more reduced with the cap introduced by FCA over these loan amounts. These loans now do not extend into many times the original amount and the stringent measures employed when giving a loan mean that only eligible candidates receive the money.
Advantages of Payday Loans
There are many advantages that are gained by using the payday loans. These advantages can overshadow the financial problems that are attached to taking these short term and high risk loans. Here are some of the advantages.
Pay off Utilities
People with low income often face problems in properly running the expenses according to the fixed budget. They may run into a situation where a utility may be cut off due to non-payment. A payday loan saves them from this fate and ensures that they do not have to run into massive problems such as having to find a new home or living without gas or electricity.
There are always transportation costs that you have to pay in order to get to your workplace. If you run out of money and have to take a loan in order to ensure that you are able to earn money, then it is alright to take a payday loan.
There are many companies that are offering these payday loans and it can be difficult to select the most appropriate lending company. It is best to look at the Payday loan comparison tool available at the website of Quiddicompare and then choose the one that suits you the best.