Payday lending is a very different animal from many of the other options which are currently available in the UK ‘sub-prime’ lending market and polarise opinion like no other. Viewed by some as offering a financial lifeline, others take a very different view with the constant stream of stories relating to sky high interest rates and debt spirals being enough to keep them awake at night.
Much of the current level of concern relates to the fact that payday advances are targeted at borrowers who can be classified as ‘vulnerable’, such as those with limited financial options and those who are young (i.e. approximately 18 and upwards who have little experience taking out a loan).
In this article we explore why all payday advances should always be approached with caution by explaining why you must be prepared to see beyond the advertising.
Are payday advances all that they seem?
The very heart of the argument regarding the focus of payday advertising was highlighted in a recent Commons Business Committee report which warned adverts could expose vulnerable borrowers to the idea that borrowing money in this way was a “fun, easy and an appropriate way to access finance”.
For more information relating to this BBC article, please take a moment to visit the link below:
Why should they not be trusted?
A large proportion of the negative publicity directed at payday lenders relates to the fact that they are known for not adequately explaining the terms of their products.
There can be little doubt that the advertising for payday advances is highly effective at promoting the positives, for example:
- Available quickly
- No credit checks
But is far less effective at highlighting some of the sizeable negatives, such as:
- Very expensive
- Only a short term option
- Can lead to further financial problems
The ability of payday loan companies to provide their customers with a full picture can easily result in customers having no idea about the potential for the balance to roll over (and charges to spiral) until they find themselves in a position where they cannot afford their repayments.
Looking at the facts
If you still need a little convincing regarding how trustworthy this type of finance can be, check out the following:
- Interest rates are routinely over 4000%*
- Payday lenders often do not use a credit check during the application process (resulting in accusations of irresponsible lending)**
- Payments are taken via CPAs (Continuous Payment Authorities). This means that if there isn’t enough money in your account to repay the loan on the agreed date, the lender may keep asking your bank for all or part of the money. Charges will be added for late payment.***
Does this sound like a trustworthy loan to you?
- * The Guardian – Payday lending: the APR is sky-high, the pain is higher still
- ** Which? – Payday advances: How they work
- *** Money Saving Advice Service – Recurring payments for payday lending
Further confirmation regarding the concern relating to the danger posed by payday lending is provided by the fact that the number of people struggling with because of this type of agreement has risen by 42% in the past year, according to a debt charity.
StepChange’s latest figures suggest the number of people getting into difficulty as a result of payday loans is continuing to increase. In the first half of 2014 it dealt with 43,716 consumers who were in trouble. That compares with 30,762 in the same period last year.
For more on this story, please check out the following article:
The trustworthy alternative to a payday advance
A number of forward thinking lenders are now offering an alternative to the payday advance in the form of the loan with a guarantor.
With larger sums and longer repayment periods available (with charges being approximately 10% of a payday advance), loans with a guarantor offer a far safer option for bad credit borrowers and you will not have to worry about being caught out by the small print.
With our lenders, your credit score is not a problem, our fast, simple to complete application will get you a wide choice of options from the very best lenders in the UK.
Our calculator will let you work out how much you can afford to borrow and when you press ‘Quick Loan’ below there are no fees and absolutely no obligation to take out a loan.
What does your credit file look like?
If you do not know the current level of your credit score and would like to find out which options may be available to you, visiting the Checkmyfile website to claim the UK’s only multi-agency report is the perfect way to check.