Payday Loans - The Rumours Vs The Facts
As a popular financial product, there is a lot of information circulating about
payday loans. With so much being said about them, discerning the fact from the fiction
can be difficult and prospective borrowers could find themselves unsure about the
best course of action for them.
To help you understand the world of payday loans, here are a few common beliefs about the financial products and details on whether they are fact or fiction:
They target the vulnerable – FICTION
Perhaps the biggest misconception about payday loans is that they prey on vulnerable individuals. Payday loans are simply sometimes available to a wider selection of individuals than standard loan products because of the short term nature of the product.
Applicants must still be aged 18 or over and be in some form of paid employment to receive the loan and all of the information about the products is provided upfront. Reputable lenders and brokers do not hide their eligibility criteria, interest rates, repayment expectations or other details from their customers and make every effort to ensure successful applicants receive a loan which they are able to repay comfortably.
If you borrow £100, you'll pay back thousands at the end of the month – FICTION
Whilst the rate of interest quoted for these loans can seem high at first glance, the truth is this can be a confusing representation of the amount actually charged. This is because interest rates are quoted as an annual figure and, as payday loans are a purely short term product, this figure is somewhat confusing.
In reality, payday loans are often much more affordable than they may appear, and whilst the interest rate will change between lenders, a typical example shows that around £29 of interest is accrued for every £100 of loan as long as it is repaid on time. It is for this reason that most lenders will display examples of repayment amounts alongside the annual interest rate to help customers make a more informed decision.
They are designed to be repaid within a month – FACT
Whilst there are some exceptions to this, as a general rule all payday loans are repaid within one month. This is because the loans are only designed to be taken over a short period of time and details for the repayment are taken at the time of application. This sees applicants asked to provide debit card details and sees them used by the lender to take an automatic repayment on the scheduled day.
Of course, if borrowers fail to have sufficient funds in their account at this time then the payment will sometimes be rolled over. However this is not encouraged by lenders and will obviously see more interest accredited.
They follow responsible lending guidelines – FACT
As stated above, payday loans lenders and brokers ensure that all of the necessary information is provided upfront. The amount of loan offered is made in accordance with your salary details and is therefore designed to be a comfortable and affordable amount, helping to make repayments more manageable. The taking of multiple loans is not recommended and payday loans are never suggested as a form of long-term debt management.