Payday Loans

Warning: Late repayment can cause you serious money problems

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Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

This article contains information about products/services offered by us as well as those that we do not offer.

Author: Internal Marketing Department

 

 

If you are looking to borrow a sum of money, whether it be for a short term loan, a larger instalment loan, maybe a type of particular finance or even a mortgage there are always many things to take into consideration, before choosing a lender and then submitting the application. For example you will need to know the exact amount that is needed to be borrowed, how long the finance will be over and what lender to choose from. 

Before a loan is taken out, a customer is given the option to select a direct lender or instead go through a financial broker. It is important that a customer knows the differences between the two, a direct lender offers the loan directly to the person applying or they simply decline the application and can then choose to say the reasons on why or not that has happened. If the application is declined the lender can just say the customer does not meet the lending criteria or they are just unable to offer the loan that is required (With the exception that if it is based on information from a Credit Reference Agency they must notify the customer that this is the case). A broker often charges fees (although this is less common now with short term brokerage) which are normally upfront charges in order to help that customer get the loan they want, however using one of the financial services does never guarantee a loan to that person at any stage. A broker will approach various companies trying to get finance that has been requested approved. 

The main benefit of using the direct lender would be that you always know exactly where you stand You can research them thoroughly before making the application through them, you can contact them at any stage to discuss any questions or queries you have and then the decision comes afterwards pretty instantly and it is here where that customer can be accepted or be rejected by the lender. 

If you want to make contact with them you can call them and discuss the application in length and this can not always be done with some types of broker as some have no further involvement once the application is passed to the lender. Be aware that if an application gets declined this can adversely affect your credit file as it leaves a 'search' footprint. When applying via a broker they can pass your application to many lenders and if each does a credit search these too can show on your credit file unless the lender only uses a 'quotation search' which is now becoming more common.

Another great thing about a direct payday loan lender is the fact that there is often no charge accrued during the application. Sometimes customers can be used to applications being declined particularly if they have shown a poor credit payment history in the past however with a direct lender they will normally not be charged if the loan is accepted or not. A customer on the other hand may use a broker if they have been declined a lot previously as they can complete just 1 application form and but have many lenders consider them . Using a broker may up the percentage for a loan being accepted yet it can never guarantee a loan to be funded at any stage. 

Payday loan lenders and affordability

In order for a consumer to consider using a payday loans lenders there are several factors to be considered. There is now a good selection of products which exist within the online lending market and therefore it is important consumers are able to make an informed borrowing choice. Not only must the different types of products available be considered but also a consumer must have a good understanding of which product is best suited to fit their individual needs and most importantly their budget. For several years now payday loan lenders have been taking the matter of affordability extremely seriously and as a result this is now clearly represented in the product they offer and the application forms used to obtain it. Today we will review how the market has responded to the changes in regulation and the importance affordability now plays for payday loan lenders.

 

In order for consumers to make informed lending choices they have to be able to make a choice based on a good selection. In the past the market for short term loans was somewhat limited. Given how new this form of lending in general was, this is of little surprise. About a decade ago when online loans of this nature first came into play the product was designed to be simple, easy to access and fast. The product was known as a classic payday loan and as the name suggests allowed customers to borrow until their next employment pay date. On the agreed due date of the loan the customer would repay the loan amount they had borrowed and the interest charged by the lender to borrow. Typically loans considered ranged from £100.00 to £500.00 and if the applicant was successful they would receive the funds the same day. The interest was usually applied to these loans based on the amount borrowed only; not the specific time frame of the loan. Given that customers were only ever borrowing for a maximum of 31 days; based on the fact they repaid on the next pay date, this was the method used commonly to apply interest. A £100.00 loan was likely to carry interest of £30.00 and a £200.00 loan would have interest of £60.00. This meant when the due date arrived £260.00 was the payment due for any customer borrowing £200.00, regardless of the point in the month the funds were borrowed.

The product now offered by lenders is based on instalment repayments. As before the applicant process remains simple and easy to complete online, normally the process can be done within 10 minutes. Those applicants who are successful will often receive the funds the same day as has always been the case. In the instants of the modern day loans consumers can choose to repay the loan over a number of months. Depending on the lender the customer is usually presented with terms ranging from 3 months through to 9 or even 12 months. Each month the customer will make the agreed instalment until the final repayment is made and the account is repaid. Interest on these instalment loans is usually a result of both the capital outstanding and the time frame over which the money has been borrowed.

The fundamental difference between these two products is not the type of service which is offered but the affordability of the product being presented. Over time it has become clear that consumers are better able to manage a monthly instalment because it is more likely to fit in with their existing monthly expenditure. This term ‘expenditure’ relates to a customer’s monthly costs which must be paid to ‘survive’. For many this is most certainly going to include, accommodation costs, electricity and water as well as travel expenses. For others this could also extend to car finance and other financial based commitments. The total of these amounts is an individual’s normal living expenditure. Therefore for a short term loans to be realistically affordable it must be able to work with this budget and not fall outside of it. For many years borrowers chose the option to borrow from a payday loans lender and when the lump sum repayment was due, found that in fact their budget could not adequately support it. As a result many with these type of loans struggled to make repayments. Instalment based loans however are far more flexible and allow the customer to select a loan repayment which works with their normal monthly expenditure. 

 

Payday loans - The positives and Negatives

Before anyone even applies for a loan they have to ask themselves a few things such as do they definitely one hundred percent need the loan in question and how much realistically are they looking to borrow. They also need to think about what type of loan they need and one that best suits their financial circumstances, for example do they want a single instalment payday short term loan or maybe an instalment loan over a typically longer period of time. They can also look at a possible credit card as another type of borrowing option. There are also so many lenders in the financial market place and all of these can offer different things some of which are positive and some are potentially negative factors. In this article I am going to focus my attention on the payday loan market and I will be explaining what they are in detail and what they can offer their potential customers.

Some people may ask what a single instalment payday loan actually is? Well a payday loan is a small loan given to a consumer by a lender and is a loan that is repaid on that persons next payday and this is normally completed in a single monthly period. 

A strong benefit of the payday loan has been seen as the speed in which they can be funded to the customer. This is perceived as a massive positive as normally people using these forms of finance need the money quickly and here they can get their wish. Most payday loan applications are completed online nowadays and if the application is accepted the funds will normally be funded to the customer (free of charge) the exact same day and in some cases they will pay the customer within just a few minutes. If a cash emergency arrives unexpectedly which to be fair happens to everyone, at least with borrowing this way the funds can be there quickly and the financial panic can then be stopped.

There are many people out there who will have struggled paying debts off in the past whether it be their fault or not and now as a result they have a poor credit file. This can make obtaining future credit hard to achieve however with a payday loan credit can still be made available. People can feel free with a poor credit rating to submit applications for this finance, I can never guarantee even a payday loan will be granted, but many of these are assessed on affordability and recent credit history rather than simply a score based on the last 6 years history. The payday loan market has been growing quickly over the last few years so the chances are a loan will be accepted somewhere however the interest charges on the product may vary so this is something that has to be taken into consideration. People with poor credit will pretty much be guaranteed to be rejected through major banks or building society’s for example for their particular products but payday loans can give them finance options despite these options may be slightly limited.   

However a negative factor regarding payday loans would be the interest rates they can charge, they offer loans to people with typically poorer credit ratings so they have to charge higher than some lenders due to the financial risks of loaning money to people who may not repay the debt. 

I feel one of the main negative factors of single instalment payday loans is the lack of flexibility they can offer their customers. Once a loan is obtained the customer has to pay back the full amount on their next payday and this is normally in less than a month’s time. These normally work out to be high amounts due to the interest and capital having to be paid off in one off single transaction which many may struggle to do this and then they see their loan agreement entering arrears as a result.

Editor: Where this article discusses brokerage for both short term loans and more traditional mainstream loans. The process can vary between the 2 including the amount of involvement the broker has in the process.