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.

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.

What is a payday loan? Be informed before you agree to a loan that you cannot afford

When it comes to payday loans, Payday lenders have faced criticism and bad publicity for the services that they provide to the public. Payday lenders have been blamed for cheating the public, promulgating poverty and stealing from the poor. These allegations may be all well and good, but the consumer who takes out a payday loan needs to be responsible for their actions and therefore here is as a guide: What is a payday loan?
• A payday loan is a short-term high-interest loan. That means that if you take out a payday loan it is important to understand that you need to be sure that you can pay this loan back in a very short period of time.
• A payday loan is designed to be exactly what the name suggests. A loan that you take out now and pay back when you receive your next wage packet. These loans are ideal for people who have an income and need to get their hands on some quick cash that they can pay back in a few weeks.
• Because the payday lender takes a huge risk when they are lending money to you so quickly and for such a short period, the lender usually charges an extremely high rate of interest. Commonly they can charge up to 1500% APR, compared to the 18% percent for the average credit card. New rules limit payday lenders from charging more than 0.8% interest a day. It is still very expensive because if you were to borrow 100 pounds for 30 days, the interest alone would be 24 pounds. That does not include any other charges or fees.
• Your debt can be rolled over twice. This means that you can push repayment over another month if you cannot repay. Even legislation requires payday lenders to provide you with information about debt help services; you will still incur charges and more interest for the additional two months of roll over.
• Payday lenders can also set up a CPA (continuous payment authority) so that they can withdraw money straight from your bank account. You have the right to stop this, and the lenders only have the right to two failed attempts before they have to contact you.

What is a payday loan? Avoid the trap of falling into debt

Many people rush off to the payday lender because it is an easy way to get their hands on some quick cash. Although the FCA has put some strict regulations into place, if you don’t have a bad credit record or other payday loans you are most likely to be approved. Payday lenders do cross reference to check if you have other loans and don’t be deceived; they are required to do a credit check. So what is a payday loan? It is definitely not a quick fix. Do not take out a payday loan if:
• You need cash to pay off other loans or debts
• You have other payday loans
• You are not absolutely sure that you can pay it back
• If you want to buy things, you otherwise can’t afford even with your pay packet.

That is what a payday loan is. A loan t tide you over until you get the money you are expecting to receive elsewhere so you can pay the loan back.