Payday Lending – Friend Or Foe?

Over modern times, banks and building societies have tightened their loaning policies to such an extent that there are virtually no financial loans available at the moment. Customers have therefore looked for other unprotected credit and consequently we now have record levels of debts.

Despite the base attention amount remaining at an all time of low of 5%, creditors are slowly improving attention rates; with new rules being imposed on the market, targeted at giving consumers a better cope, the chances are prices will continue upwards.

Basically if customers are getting a better cope, it indicates the creditors will create less money than they would like and therefore look to create up the difference through a rise in prices.

However, there is one other area of unprotected loaning, which has grown massively in the last 3 decades and which is getting a lot of press – both good and bad. This other area is Payday advance Lending.

A report by the Customer Focus watchdog group, claims that the number of individuals taking out Payday advance Loans has increased by 400 % over the last 4 decades. It is estimated that £1.2 billion is borrowed each season now, with 1.2 thousand individuals taking an average of 3.5 financial loans per season, with each mortgage approximately £300. This is a staggering development, particularly when prices on this kind of credit range between 2 and 5000 %.

Not surprisingly, with prices at such a advanced level, a huge number of individuals believe this is nothing more than legalised mortgage sharking; it is claimed the loan organizations pray on the most vulnerable individuals of community.

So what is Payday advance Lending exactly and why would anybody accept such an improved attention rate?

Payday loaning is targeted at individuals who need a small mortgage of between £100 and £1200 and who want this money immediately.

Applications are made online mostly – although there are some “bricks and mortar” organizations, the bulk of transactions are conducted on the internet.

In some situations there is no credit score assessment carried out, which can be a major attraction of course. With programs where there is a credit score assessment made, the loan organizations may well still lend even if the money score assessment shows a a poor credit score score history e.g. somebody with a County Court Judgement may still be able to gain access to, when other loan organizations would refuse credit score.

When applying, the individual gives the lending company their bank and debit cards details and also says on what day they get compensated. If accepted the money is transferred into their consideration within several hours.

They acknowledge that the lending company can take the money (plus fee) direct from their consideration when funds are available e.g. when they have just been compensated -hence the name “Payday Loan”. In theory this is a nice and simple transaction with both sides getting what they need.

The prices are great for two reasons. The first is that the individuals who take a mortgage in this way are by definition dangerous. This implies that the default amount (people who do not pay back the loan) is much greater, and therefore the danger to the lending company is great. To cover this danger they charge an improved attention amount.

The second reason is that because the mortgage is due to be repaid over a few months (1-30 days), and attention prices are calculated on an annual basis it makes it look artificially great. Generally the APR quoted assumes you would be shelling out the same attention amount every day for a season when in all reality you should only be shelling out it for a maximum of 1 30 days.

To put this into perspective, an unauthorised overdraft fee with Lloyds TSB, based on somebody going £200 overdrawn for 10 times would cost the individual £85.95. Using the APR formula, applied to Payday advance loaning, this equates to an APR of 46, 450 869 % - yes that is 46 thousand per cent!

Of course with Payday advance loaning the same as with any other kind of credit, the charges improve if you do not create the payments you accept when you initially lend the money.

The Payday advance Lending market has not assisted itself here with some rogue loan organizations severely improving late charges and then acting unscrupulously in pursuing the financial debt. These situations have been well publicised and along with the misunderstanding over prices have assisted tarnish the reputation of the market, although as the development in loaning demonstrates they have not really put consumers off.

So are Payday advance Loans our friend, with a place in community along with all other forms of loaning, or are they our enemy and to be avoided at all cost?

Well the answer is yes and no!

Payday financial loans can be a useful way of resolving an immediate money crisis, if you have no other access to credit score. For example, an unexpected bill or emergency which requires immediate money e.g. an urgent car repair.

However, if you find that you need a Payday advance Loan each 30 days or so then this indicates a more serious financial issue and you should take a close look at your outgoings. If need be, sit down with a managing financial debt professional and work out the best remedy for you, which does not need constant credit.

The main point here is that like any form of credit the onus is on the individual to treat a Payday advance Loan responsibly. Never take a mortgage unless you know exactly how much you will have to pay back and are confident you can meet the repayment schedule. If you follow this principle and find yourself brief one 30 days then a Payday advance Loan can be a fast simple remedy.