How to choose a Payday Lender

You’ve found a Comparison Site but now how do you choose the Payday Lender?

It wouldn’t be wise to simply pick one based upon how attractive their website looks, or how many TV Ads you see for that company. Consumers are best advised to do some research into the Lender they want to use. Why? The company you choose will have access to your financial information – and Bank Account. So review first.

When choosing your preferred Lender, use the comparison sites filters to help you decide. LenderSeekers.co.uk have a uniquely wide range of filters to help you – use them don’t use them, but make sure you review the Lenders. Is it important that you do not enter into an agreement whereby the Lender uses the Continuous Payment Authority service? Then using a filter, you can exclude those lenders that insist upon using it, leaving only those that do not.

The same applies to any of the other criteria the filters work with. A useful tool – so look for Comparison Sites like LenderSeekers.co.uk that offers filters.

Of course, it should end there. You should do a quick Google search and see if there are any negative reviews floating about; with regards to these, a good Lender would respond to any negativity and address it, so read a Lender’s responses, they can reveal a lot about the company’s ethos.

Finally, be careful out there – we would advise against accepting loans from cold callers; often these are fraudsters pretending to work for a legitimate company. A legitimate company will have a warning on their website if their name is being used inappropriately and any advice they offer should be heeded. We would recommend you apply online via the Lender’s application form.

This Blog was brought to you by LenderSeekers.co.uk

Comparison Sites for Short Term Loans

Why a Comparison Site, what advantages does it offer?

The answer is simple. When you use the services of a comparison site such as LenderSeekers.co.uk, you have access to a list of Lenders in one place and these Lenders are featured for the following:

1.       The Lenders are all verified.

2.       The Lenders are all Licenced and Regulated by the Financial Conduct Authority.

3.       The Lenders are all members of a Trade Association.

This means that if you apply to any of the Lenders on LenderSeekers.co.uk you can be assured that you are dealing with a reputable Short Term Loan company that can directly fund your loan – and not a Broker or an unlicensed organisation that is unregulated.

In addition you can often find filters on Comparison sites that will help you choose which Lender you want to make your application to; on LenderSeekers.co.uk they offer a wide range of filters that you can choose from. You don’t have to, of course, you can simply read about each Lender individually and make a decision based upon what they offer but should you want to, you can filter specific requirements that you have to ensure that only those Lenders offering those will remain for you to choose from.

A good payday lender comparison site service will also provide you with an affordability calculator so that you can work out your expenses before applying so that you know what amount you can comfortably afford to borrow. There will also be a wealth of information concerning short term payday and instalment loans to keep you in the know about how they work and what to watch out for.

This Blog Post was brought to you by www.lenderseekers.co.uk.

WARNING: Late repayment can cause you serious money problems. For help, go to www.moneyadviceservice.org.uk

Payday companies and the journey of a successful payday company

Before the strict regulation of payday companies, there were many payday companies. For those payday companies that survived regulation, the journey has been difficult. One large payday company that survived to tell the tale shares its journey from their launch until today. Like many other payday companies, this payday company has recently reported massive losses of 35 million pounds. This loss is in comparison to 2012 when the same payday company announced a healthy profit of around 60 million pounds.

  • In 2007, two entrepreneurs put their heads together and founded a payday company.
  • In 2007, they launch the website of the company. In line with many other payday companies, they offer loans up to 1000 pounds. These are short-term high-interest loans easily obtained and also quickly paid back to the company.
  • 2008 sees the launch of the first product. In London, there are 40 employees and in Bulgaria they have a development team. According to the founder, they serve 50 000 customers during this early phase of the company’s development.
  • Using similar unconventional methods, the company advertises their product. This unconventional advertising approach gathers condemnation from some campaigners.
  • In 2011 Stella Creasy of the Labour Party carries on her condemnation of ‘legal loan sharks’. At this stage she calls for a cap on borrowing from the payday company.
  • The Guardian awards the company the Digital Entrepreneur of the Year title.
  • Continuing in 2011 there are reports that the company is lending to people who are on benefits. Students are also allowed to take out a student loan.
  • The Office of Fair Trading (OFT) investigates 50 of the biggest payday companies.
  • The payday company complies with changes requested by the OFT.
  • In 2012 controversy is mounting against all payday companies. The industry is accused of exorbitant interest rates and unfair debt collection as well as cheating clients.
  • At the end of 2012 the company reports, they have trebled their earnings.
  • At the beginning of 2013 the company reports that it had to write of almost 80 million pounds in 2011.
  • In March 2013, the OFT gives payday companies an ultimatum to mend their ways
  • The Archbishop of Canterbury tries to take down the payday industry by competing with them using credit unions.
  • The FCA, in October 2012, has the job of regulating the payday industry
  • November 2013 gets the FCA to put a cost cap on payday lenders and at the same time a top executive steps back from running the payday company whose journey we are following.
  • In July of 2014, all payday companies are obliged to follow new rules and many payday companies leave the industry.
  • In September 2014, the payday company announces that their profits have fallen by half.
  • 220 million pounds are written off for all customers in arrears by more than 30 days.
  • In December 2014, the interest rate is cut in order to meet the cost cap.
  • February 2015 and the company announces that 325 jobs, one third of the workforce, are to be cut.

Payday companies have plenty of challenges

The journey, so far, has been a difficult one. Payday companies, like any other company, need to make a profit and they need to employ people. Payday companies have their fair share of challenges. They also employ people and the job cuts are a loss to the community.

Caps on Payday Loans: will new APR’s affect payday lenders pockets?

The payday loans cap has been implemented, but it is still too early to be able to say what the effect will be on the payday industry.

Theories abound, for example, there are those who say the caps will be positive in helping the short-term loan sector to grow while others say the caps will be instrumental in putting payday loans lenders out of business. Already some of the small payday lenders have shut shop but the big players are surging ahead. It seems evident that big payday lending companies will manage to survive a drop in the annual percentage rates (APR’s) to as far as 1,2000 percent. It is believed that this APR drop will have a negligible effect. With the new APR, borrowing an amount of 200 pounds will mean a drop of only 1 pound.

Policis, the USA based consultancy, reports that payday loans caps in the United Stated caused the credit supply to fall, but the demand remained the same. The question is, what happens when the demand outstrips supply? Naturally, a black market will emerge. With the payday loans industry moving online in the USA business is doing better than ever. Many of these online shops are lending illegally or are unlicensed. Policis is warning against clamping down on the payday loans industry because, as they see it, the tougher the regulations the more lenders will start operating on the internet. It is a fact that it is extremely difficult to police the internet.

In Britain, almost 80 percent of unsecured short-term lenders operate online. The Financial Conduct Authority (FCA) is aware that payday loan caps might limit access of funds to UK citizens but have what they say is a reasonable solution to the problem. According to the FCA, if you don’t have access to credit and can therefore not borrow money, appeal to friends and family.

Payday loans caps in Britain

Back home, the problem is far from being resolved. Where does one access credit and what alternatives are there to payday loans? There are not, it seems, viable solutions. Credit Unions do not have the infrastructure nor the funds that payday companies have and are therefore unable to lend money the way payday lenders loan money. Microfinance companies or organisations are in the same boat. The Church of England has created a credit union that has been useful but neither do they have the resources that some of the large payday companies have.

The British citizens are in need of financial services that are responsive and flexible. Wages are clearly not sufficient so one idea is to raise the minimum wage and teach people how to set a budget and stick to it!

Payday loans have their place in society and it would be good to see them being used for what they were created for.

A payday loan employee mans the telephones

Grant is the customer services manager of a payday loan company. His job is to contact customers who have defaulted on payment, or not made any payments at all. He runs the call center. When I arrive I am shown over to Grant’s desk. He waves me to some chairs and I sit down. However, not before I notice 3 sides of A4 paper covered in numbers which I assume are there for Grant to call on.

As I sit and wait for Gant to finish up whatever it is he is doing, I take a look around the office. There are eight other people who seem to be doing the same thing as Grant. I listen in on one of the phone conversations. The payday loan employee obviously calls someone who owes the company money. The telephonist is patient and calm.

“Hello, who am I speaking to? Ah, can I speak to Mr. C? Is that your Father? Oh, is he in the kitchen? Please, could you ask him to come to the phone? Where did he go? But you said he was in the kitchen two seconds ago. Ok, so he went out. Thank-you, can you write down this phone number for me … and ask him to call back when he gets home.”

It is clear that it will be difficult to get this particular customer to pay back his loan.

A Payday loan employee: It’s all in the approach

This particular payday loan company employs about 15 people. It is a small company and approves approximately 3000 loans a month. These loans are never more than 500 pounds, and of course, at the end of the month, at payday, this is when the telephone wires glow hot as the employees start calling in collections. One would think that the anxiety and stress levels would soar, but here the payday loan employee is calm and friendly. There is no frustration, anger or slamming of phones. Grant is proud to explain that they do not use the services of debt collectors, and he claims that the company has only ever once had to take a defaulting client to court.

Grant tells me that it is important to know what you are dealing with. This payday company serves a specific demographic. Their average client is 32 years of age, and 80 percent of the clientele fits between 23 and 40 years of age. The customer they most like to do business with is someone who earns approximately 21 000 pounds a year. Grant explains that the company tries not to let people over-extend themselves, thus creating a greater opportunity to end up defaulting and in debt.

The Company’s chief executive explained that people under the age of 23 should not be taking out payday loans. They should rather try the Bank of Mum and Dad. He went on to explain that of all the company’s customers 65 percent fell in the category of those who borrow and pay back timeously. Then there is 10 percent who end up in real difficulty and will probably go bankrupt. Lastly there is the 25 percent of borrowers who can’t pay the loan back in one go and need a little help with.

Grant, the perfect payday employee

Grant tells us that he works standard hours, so he has ample time to spend with his family in the evenings and at the weekends. He uses his spare time at the gym and likes to run. His salary is in the range of 25,000 pounds a year.

The best thing about work for him is the people he works with. The worst thing is dealing with the odd aggressive customer who is struggling with debt but is not interested in co-operating to find solutions.

The journey of a first class payday company

Sitting back, post regulation, those companies that made it through can remember the journey. A payday company that played a large part in the industry shares its story from the first launch until now. In the present payday business climate, like many others, this payday company has reported losses of up to 35 million pounds. This can be compared to 2012 when the company announced a profit of 60 odd million pounds. Let’s see what happened from then to now.

In the beginning, there was a payday company

  • This company was born in 2007. Two entrepreneurs got together to found a payday company.
  • In the same year, they launch the company website online. The payday company offers loans up to 1000 pounds. Short term high-interest loans that are easily obtained and just as quickly paid back.
  • In 2008, the company has fully launched its product. There are 40 employees n London and a development team in Bulgaria. The founder claims to have served 50 000 customers during this beta-version phase of the companies development.
  • The company goes on to advertise their product using somewhat unconventional methods. This arouses condemnation from campaigners like Labour MP Stella Creasy.
  • In 2011, Stella Creasy continues her fight against what she calls ‘legal loan sharks’. She called for a cap on the cost of borrowing from the payday company.
  • This payday company also won the Digital Entrepreneur of the year by the Guardian.
  • Still in 2011, reports that the company has been lending money to people on benefits as well as information of the website that students could take out a student loan.
  • The OFT (Office of Fair Trading) looks into the matter and investigates 50 of the largest payday companies.
  • This payday company makes the changes that are requested by the OFT.
  • During 2012, controversy mounts against all payday lenders. The industry is accused of unfair debt collection practices, exorbitant interest rates, and cheating clients on websites.
  • By the end of 2012, it reports that it has trebled its earnings.
  • At the start of 2013, our payday company reports that it wrote nearly 80 million pounds off in 2011.
  • March 2013 sees the OFT give all payday companies an ultimatum to change their evil ways
  • Archbishop of Canterbury attempts to take down the payday industry by competing against them with his credit unions.
  • In October 2012 the FCA (Financial Conduct Authority) is charged with the job of regulating the industry, mostly by cracking down on existing practices.
  • In November 2013, George Osborne charges the FCA with the job of putting a cost cap on lenders. At the same time, one of the top executives takes a step back from running the payday company.
  • In July 2014, new rules were set out for all payday companies. Many companies leave the scene.
  • By September 2014, the payday company announces that profits have fallen by 50 percent.
  • Once again 220 million pounds are written off for customers that were more than 30 days in arrears.
  • The interest rate is cut in December 2014 in order to meet the cost cap.
  • In February 2015, this payday company announces that 325 jobs will be cut. Approximately one-third of the workforce.

It has been a long journey for the payday lender, and not always a pleasant one. Alongside all the outrage and controversy about the people that the payday lender ends money to, or as many would like to think, reels in and traps, there is still a company. A payday company, out to make a buck like the next guy.

Many of thousands of students turn to payday lenders. Maintenance loans and grants just don’t cut it.

Unite Students, a student service, took a survey to put a number on the many students that have turned to payday lenders in times of need. It was reported that 26 400 undergraduate students and 5 400 postgraduate students basically relied on payday loans to get by. In total, they could be paying up to 1500% in interest rates.

When asked to comment the payday lenders replied that students who turn to payday lenders for cash are “capable of making informed choices.”

Jenny Shaw, head of student services for Unite Students, makes it clear that the concern is for students who are turning to payday lenders in desperation. These students are taking out loans that they can’t possibly pay back. There is a great gap between the grants and maintenance that students can apply for and the money that they are actually given. It is no small wonder that students turn to payday lenders. A payday short term loan is easy access to the funds that are sorely needed.

Why do students turn to payday lenders?

Unfortunately we cannot dump any of the blame on the shoulders of the payday industry this time. In fact it would not be surprising that the payday lenders give out loans to students with regret and pity, wishing they didn’t have to. What is the problem? What makes students turn to payday lenders? Ed Milliband does not seem to think that student loans and grants need any kind of reformation. So students and their families sit in a tight squeeze while they sweat out those university years.

In London students can borrow 7 751 pounds per year for rent, food, and any other expenses like travel or entertainment. On top of that another 9000 pounds need to be coughed up for tuition fees, because that is basically how much it costs to teach a student these days. Now it doesn’t matter how you look at it, it’s just not enough and so the assumption is that the bank of Mum and Dad will step in and pay the rest. What if Mum and Dad and down at the payday shop as well? According to recent study, to live and study with basic needs covered, another 5000 pounds will need to be found. For those who make a medium sized income as well as those who make practically nothing at all, it is impossible to support the student in the family. So students turn to payday lenders.

Who is getting the blame for students taking out payday loans?

As usual the payday lenders are taking the wrap. Audrey Jordan, a student in London got herself into 6000 pound worth of debt with payday lenders. Here is what she says:

“I would say to students thinking about using a payday loan provider – take my advice: do anything to avoid it.”

At the same time the National Union of Students is speaking out against that the loans and grants are insufficient.

A spokesman from the Consumer Finance Association (CFA) stated that responsible payday lenders would not give a loan out to a student if they did not have a job or any other form of disposable income.

Across the pond: We take a look at payday loans for low-income users

 

The payday loans dilemma seems to be consistent the world over. In any country, the companies that fork out a quick loan to just about anybody are currently under siege. These loads have different names all over the globe. From title loan, to short-term credit loan, to an emergency loan, but the most common description for these loans is the ‘payday’ loan, and according to different authorities, payday loans for low-income users. I think we all know what the payday loan was designed for, and that it was meant to live up to its name. A loan to tide you over until you get to your next pay check. A quick loan that obviously comes with a hefty interest rate, fees, and charges. A payday loan is a loan that was never meant to be paid off over months, and that is where the problem started. People began to see payday loans as credit for low-income users and these users have difficulty repaying a loan, let alone the electricity, rent, or supper.

Are payday loans for low-income users doing more bad than good?

While addressing the population of Birmingham, Alabama, President Barack Obama said:

“The idea is pretty common sense: If you lend out money, you have to first make sure that the borrower can afford to pay it back. But if you’re making that profit by trapping hard-working Americans into a vicious cycle of debt, you’ve got to find a new business model.”

Our cousins on the other side of the Atlantic are not much different than us. Here in the UK we have seen the FCA (Financial Conduct Authority) take the reigns of the short-term payday industry, passing across the board regulations that will ultimately be beneficial for those payday companies that have been approved. Competition is actually being generated. In America, Federal Government has begun to compile a set of regulations that will apply country-wide in comparison to each state for itself. At the center of the CFPB (Consumer Financial Protection Bureau) is a set of regulations requiring payday lenders to verify that the customer have an income that allows repayment of the loan. This stops payday loans for low-income users to spiral out of control, landing in the debt-trap that the president speaks out against.

Do payday loans affect low-income Americans? Or can the economy take some of the wrap?

According to by the Washington-based think tank, Urban Institute, around 2.5 million households took out a payday loan in 2013. Since that time, the number of loans taken out by Americans has risen by 19 percent, even though unemployment has fallen and the economy is busy bouncing back. On average a single borrower brings in less than 23 000 dollars, which is well below the poverty line. 80 percent of loans are rolled over of renewed incurring more fees. Over 12 months, on average more than half of the total borrowers had more than 10 loans and had rolled over existing loans or borrowed again.

Are payday loans designed for those living in poverty?

The answer is no, and the fact that the poor have no choice than to approach payday lenders for financial relief says a lot about the economy that has made such a brilliant come back. Don’t mistake a payday lender’s store for the welfare queue.

Payday loans and temporary debt relief

Payday loans, or short term loans, in the UK are usually loans up to £500 to be repaid over a short term, or until the borrower’s “payday”.

As there are not restrictions on interest rates here, the standard annual percentage rate (APR) for payday loans can be high, at 1,000% APR plus.   It is common that payday loan costs up to £25 for every £100 on loan per month.  So it would be well to shop around.  Start with internet research first before making any commitments.  Then commit to thorough research of the high-street credit companies, preferably well recognised, reputable corporates with industry memberships.  Also check the APR as all lenders are compelled by the government to publish a “Representative APR.”

Be very aware that the cash provided will be at a high cost, so use the cash wisely and for emergency situations only.

Other sources of borrowings

If a person really needs short term credit alternatives to short term loans from high street money lenders including banks are buying and selling gold, pawn-broking and exchanging foreign currency (left over from holidays).  All these assets have value.

The Payday loan industry in the United Kingdom has grown rapidly since the recession of 2008 and in these austerity times, many people are forced to use this key facility to help them tied over to the next month.

The average loan size is circa £280 and two-thirds of borrowers have annual incomes below £25,000.   Over the past few years, the payday loan industry generated around £240m plus in revenue per annum; it accounted for around 20 percent of the total lending.

The largest payday lender in the United Kingdom is Dollar Financial Group, founded over 30 years ago, which provided around a quarter of all payday loans in 2009.  In 2011, Dollar Financial acquired the largest British internet payday lender, PayDay UK.  The company has a major high street presence.

Payday Loan Companies

Be sure to check if the organisation that is lending you cash has solid customer service policies in place.  Check too if it is a member of professional bodies such as the Consumer Finance Association.

Membership of such authoritative industry bodies means the company in question implements a policy of responsible lending.    The cautious policy reference means the company supports responsible borrowing so that people don’t over extend themselves.    There is no point in over-borrowing and being unable to repay the loan with its high, maybe compound interest rate.

Also confirm that the company you approach is authorised and regulated by the Financial Conduct Authority regarding credit related activities.

Through its shops and websites, Dollar Financial UK provides financial products and services including short-term loans, cheque cashing, gold buying, jewellery and pawn-broking services as well as exchanging foreign currency and money transfers.

Payday loans have acquired a bad reputation because some lenders are not to be trusted.   There are some borrowers who make use of payday loans consistently and then complain about the consequences.  So do your homework and avoid the dubious loan sharks.

Payday loans – some key points

We would raise the following for your consideration if really needing a payday loan:

  1. Reconsider if you have a family member or close friend who could support your emergency situation.
  2. Consider if you could split your payment over more than one month.  Ask the party in question.   Asking costs nothing.
  3. If the only alternative is to approach a lender other than your bank and maybe extending your mortgage, review the exact loan terms from more than one company, access to their customer service on a 24/7 basis and also their corporate or company formal status. Ask if there are any additional costs, for example, being charged for phone calls.
  4. Ask questions if the payday loan company has been in business for a long time and is considerable in size, and therefore not a lone-shark one-man band.
  5. If an online lender, check if the company is both registered and licensed.
  6. Given that you are perhaps forced to seek the best payday loans, it means that you are under debt stress which can lead to mistakes.
  7. Using a payday loan services means you are in a rare emergency. If you utilise payday loan lenders more than say once in several years, then know something is wrong in your financial planning.
  8. Be objective in making your decision. Once you have done your research, take time to make your choice wisely.  If you don’t pay at month end, you could be in line for the compound interest spiral.

Although people moan about credit card interest rates at averaging around 19 annual percentage rates, UK payday loans are far more expensive.

But then, quick and fast payday loans are only meant to tide you over until your next payday – a month at most.

Payday debt and credit card debt

The numbers are interesting regarding payday debt and credit card debt in the United Kingdom. With all the scrutiny that the payday lending sector has been receiving amid accusations of luring the British public into debt, it seems there is a credit provider flying under the radar; credit card providers.

Britain has Europe’s largest credit card industry and it is worth a whopping 150 billion pounds each year! This is no small amount. As many as 30 million citizens in the United Kingdom are the proud owners of a credit card. The grand total of national credit card debt is an enormous 60 billion pounds. According to the StepChange Debt charity, more than 500 000 people ask them for help each year. Help, that is, with their credit card debt. StepChange states that the average UK citizen is indebted to the amount of 10 000 pounds in credit card debt. StepChange also says that 10 percent of credit card holders own five or more credit cards.

StepChange believes that there are too many people relying on credit cards as their safety net. The charity believes that relying on credit cards is a trap leading to problems with debt. Credit card debt is one of the most common forms of debt that StepChange encounters. They say that many people are having a struggle with multiple debts.

The credit card market is to face an investigation by the Financial Conduct Authority (FCA). The investigation will focus on how complicated the terms and conditions of credit cards are as well as how transparent and fair the terms are. They will also investigate if or how a client is able to switch between providers of credit cards. Credit card marketing practices will also come under investigation and under scrutiny will be the packages that come with the cards. The client’s best interest will be investigated because there is currently a trend for providers to “wear down” any potential client with shady marketing. One marketing ploy is to approve people for credit cards when they have not applied for the credit cards.

According to Richard Koch, Head of Policy at the UK Cards Association” “The industry has a longstanding commitment to responsible lending and transparency” Mr Koch added that many changes had been introduced over the past five years and these changes included credit limits and the re-pricing of debt. He also states that there has been improved transparency and tolerance for clients who miss repayments.

Some in the Payday Loans industry still has a way to go to clean up the way they do business and so does the credit card industry. In reality, credit cards are not far from being the short-term high-interest loans that the payday lenders are accused of.