A payday loan is when a person borrows money from a company in order to get through a financial difficulty.  Payback occurs when weekly salary has been received. Many times, a borrower will offer a post dated cheque to cover the loan amount plus interest. It is estimated that payday loans will become more and more necessary. Here is more information regarding pay day loans.


Pay Day Loan Information

The public Accounts Committee has estimated that over two million people have sought help from a payday loan firm in the UK. This total has lent over two million pounds. Statistics show that a typical borrower of this loan is usually a young man who earns over £1,000 each month. This person is unlikely to be married or have children. Despite the desperation of a person, a normal borrower will hold a job and bank account. This type of short term loan seems to be a more attractive option than taking an overdraft on a bank account.  Another person may use this type of loan to get through a rough time when budget is tight and credit is limited.

As of 2012, the UK is filled with approximately 240 payday loan firms that are spread among 2,000 High Street loan shops.  Pawnbrokers are also known to deal with this type of loan.  Finally, there are online firms that offer payday loans at higher rates. On a positive note, payday loans are regulated.  This means that all lenders must have a consumer credit license from the Office Of Fair Trades.

Pay day loans tend to come with high rates of interest. A usual loan may cost £25 per £100 borrowed. Since no legal limits are imposed concerning rollovers, a person may end up owing double the original amount in six months. However, most borrowers find this to be irrelevant. The big concern is the cost of repayment. Most times, these loans are much easier than a bank overdraft. A problem will only occur when a borrower cannot repay the loan on time and becomes greatly extended. As interest builds, a person may become overwhelmed.

Even though many people view pay day loans in a negative manner, the OFT once stated that these firms should not have restricted interest charges since they provide a useful service and a legitimate way to borrow money. They are a better avenue for a desperate person than an unlawful loan shark.  However, with more and more pressure, the OTC has given threats to bring in the Competition Commission. This is meant to improve customer relations.

Advantages Of Payday Loans

Payday loans offer a person control over finances. There is no need to beg anyone for money. Lenders view borrowers as well capable of making solid financial decisions. These types of loans do not require a borrower to have pristine credit. Most lenders realise how hard times have been. This means that less than perfect credit is the new norm. The main thing that is important to a lender is the ability to pay back the loan.

These loans will not require a bank interview. Instead of sitting before High Street bank lenders for a financial review, payday loans offers a simpler solution to temporary cash problems. There is no embarrassment involved. These loans will be granted for any reason, without the need to supply a long explanation. A lender does not care how the money will be spent. Payday loans are normally taken for unexpected emergencies. However, the money can be used on a whim as well. The application for payday loans is a simple process, and people will receive an answer in a short amount of time. Under many circumstances, people will have cash sitting in personal bank accounts within minutes.   Like an overdraft confirmation or credit card approval, there will be no waiting necessary.

Disadvantages Of Pay Day Loans

Even though there are many positives associated with payday loans, there are a few disadvantages to discuss as well. For example, a first time borrower can only receive up to £400.  The reason for this lies in the need to establish a positive reputation. As a person proves that repayment is assured, it may be possible to increase these limits. If a person needs more money than this amount, it may be wise to consider a different loan option.

A pay day loan can only be taken by a person who is over the age of 18. This is a legal requirement that is similar to agreements between credit card companies. This is true even when a teen no longer lives with family. Another disadvantage is that a person must have a UK bank account for longer than 90 days. Only UK residents can open this account. Having an established account is a sign that a person has the intention to remain in the country. It lowers the risks that a person will flee the UK before the loan has been settled. Besides a bank account, a person must be employed either full or part time. The name "payday" loan infers that money will be repaid after a person gets paid at work. Lenders normally give cash to people who receive a salary, not just benefits. Few loan firms give a loan to a person who receive benefits because this amount of money is usually quite low. The biggest disadvantage of a payday loan is that it is only short term. It is best for a person who will need the money for a small amount of time. A payday loan must be repaid within 31 days.

UK payday loans have been growing steadily. These loans are meant as a lifeline to people who need a small extension of cash for a short amount of time. The application process is very simple and money is often available in under one hour.  However, one of the biggest disadvantage includes the high interest rates. A person must carefully weight the pros and cons while considering payday loans. In the end, they may be the best choice for individual circumstances.