When searching various financial news websites it’s hard to avoid the controversy that is constantly surrounding payday loans, and the way in which they are regulated and processed. At face value it isn’t particularly apparent why payday loans do attract so much media attention.
Payday loans are basically a type of cash advance loan that offers small amounts of finance that is designed to tide you over until your following payday. However, when you dig beneath the surface you start to unearth some controversial factors.
Firstly, like I said, payday loans are designed to be a cash advance that helps you get through to payday. However most payday lenders will not ask the applicant what they are using the loan for (i.e. the loan purpose), and some borrowers are in fact using them to cover their mortgage or rental property; a purpose they are essentially not designed for.
Another aspect of payday loans that has come under intense scrutiny is their marketing campaigns which have been branded as irresponsible and exploitative. The constant flow of primetime TV adverts and high profile web advertising has made applying for a payday loans almost ‘too easy’. At times throughout 2012 some major payday lenders were seen advertising to students who wouldn’t have the income to pay the loan back. Payday lenders were also criticised for saying that their loans could be used to fund festivities and even the jubilee celebrations.
If you borrow £4000 over the full 30 day term it is likely that you will end up paying back £525 which is expensive, but not ridiculous. The problem starts when you miss the payment date and the loan rolls over, when this happens interest will mount at a rate of 1% per day, late payment fees and charges will be attached to your file meaning that after 60 days of not paying, your £400 loan could cost you double.
Finally, payday loans have received criticism over their debt collection practices, often being described as aggressive and misleading. The OFT have since warned lenders of the consequences of misleading customers, meaning that many have now rethought their debt collection practices.
Amongst all of this criticism it is easy to forget that when managed correctly, payday loans are a helpful cash advance. Often it is when they have been managed poorly and the payment is allowed to rollover that they start to become a problem.
Author Bio: This article has been written by Jason Scott on behalf of Guarantor Loans UK. To learn more about the unsecured loan market or how guarantor loans could help payday borrowers visit https://www.guarantorloansonline.co.uk/Blog.