Cash flow or Cash drain? De-bunking the myths of the Payday Loan…
Christmas and New Year can be a challenging time for many, with increasing pressures to make your money go further than ever before. There has been much in press about the dangers of payday loans, but is it all true? Mark Bryant, member of the Advertising & Marketing committee for the Consumer Credit Association and Financial Director of Safeloans Ltd, talks through the reality of the ‘Payday Loan’, the myths associated with it and provides an insight into both when to avoid them (they aren’t always the right decision!) and in what circumstances they can potentially provide a much needed financial bridge.
As with any type of loan or overdraft, the decision to take one is entirely optional and the product is clear and transparent and this is at the core of the Payday lending industry. However, people do have bad experiences and when they do, these are the types of things we tend to hear about in the press. But is it all entirely true, or is it more a case of Chinese Whispers?
Let’s have a look at some of the most common myths associated with Payday loans…
Payday loan companies lend money without doing credit checks
FALSE
The truth is that any reputable Payday loan company will do credit and affordability checks before lending money. If the payday loan company you are using doesn’t do a credit check then perhaps you should think more wisely about taking a payday loan with them in the first place. Credit checks serve a purpose for the consumers as well as the trade and there are many responsible payday lenders who DO use credit checks before making a decision.
Payday loans companies charge exorbitant rates for late payment
FALSE
Any high street or online loan comes with late payment fees. Payday loans are no different. If you go over your overdraft, miss your loan payment or default on your mortgage payment then you are going to be charged. Payday loans can bridge the gap to stop you being charged the late payment fees from another loan. The charges are clearly stated, none are hidden everything is clear and transparent. Again, check the late payment charges before taking out the loan, often you will find they are less than your overdraft http://www.bbc.co.uk/search/overdraft
Payday Loans are the start of debt spiraling out of control
FALSE
Borrowing a small amount of money, taken responsibly, can and does serve a good and positive purpose. Many companies offer flexible payments now, so there are options are available to customers which should ensure they DON’T see their loans spiral out of control. Looking at spreading the loan over 2, 3 or 4 months so the monthly payments are more manageable which means you’re not leaving yourself short and therefore far less likely to have to take another loan to pay it off. The golden rule is to NEVER use a new payday loan to pay off an existing one!
Payday Loans interest rates are ridiculous
FALSE
The APR percentage was only ever intended for an annual loan, so by far the best way to compare your loans is by using the loan calculators provided and look at the total cost of credit in pounds and pence. There are lots of options out there for different rates and charges, so take some time to look around and find a solution that suits you best. Remember, you usually only ever hear the horror stories as people don’t want to know about the many thousands of people who use Payday loans properly and get a good service from their provider.
Any company offering Payday Loans should have a Consumer Credit License (CCL) issued by the OFT, this is minimum standards. Most companies also belong to other well-known trade bodies like the BCCA, CFA FLA CCTA and the CCA. All payday lenders that are members of trade associations will follow best business practises and will follow the trade association’s code of conduct which gives borrowers added protection and recourse to their payday lender.
For more information visit www.safeloans.co.uk
Press Enquiries:
For more information, please contact Jenna Gould on 01603 743 363 or email jenna@mediajems.co.uk
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