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.

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