Britain and America both noticed the black side of payday loans offered to the salaried community. During the 2008 financial crisis, it came to notice that high numbers of people in both countries were living just on credits. Payday lenders in the UK were charging as much they wished. The general practice of charging high-interest rate led numbers of salaried borrowers into a complex debt spiral. The basic idea of payday loan is to borrow a required small amount and use the next paycheck as the capital. It is a short-term loan generally to be payback by the next salary cheque. Paying back payday loans had become almost an impossible task because of a very rate of interests. In fact, salary loans were designed to plunge the borrowers into a long-term debt trap. To pay the one loan, borrowers need to borrow more for a longer period. The conditions improved remarkably in the UK after the intervention of FCA.
The instant short term loans in the UK are available only at online loan stores. These are made available with same day approval and the funds are transferred to a bank account by the next day. Even some lenders offer doorstep delivery facility giving a new name to small amount lending – doorstep loan. When we talk about the short-term, it means the money is lent maximum for 12 months with the freedom to pay back earlier also. The credit score plays an important role in fixing the borrowing cost but it is not the sole criteria for application approval. Some lenders advertise for bad credit score lending also with instant approval. These loans can be secured and unsecured both; however, unsecured loans are costlier because of involving higher risk factor. The freedom to use, quick money transfer and easy process make the instant loans highly popular in the UK.
The payday loan is an alternative borrowing form of an instant loan. The facility is commonly availed by the people holding bad credit history or having a low monthly income. These loans can be availed even by those seeking urgent small amount help, or even by those not eligible for traditional lending at conventional sources; therefore, these loans come at higher annual percentage rate (APR) than that of personal loans and credit cards. The small Dollars, high-cost payday loans are between $50 to $1,000. Ohio has the highest payday loan interest rates in the U.S. with an average of 667 % while Alaska is comparatively better to get a payday loan at 435%. According to Nick Bourke, the director of consumer finance at Pew Charitable Trusts, “A lending agency is not profitable until its client renews or re-borrows the part of debt at least four-five times.” The payday lenders aggressively attempt to recover the lent money by withdrawing it directly from the borrowers’ checking account because the borrower agrees for direct access as the lending condition. Payday loan if not paid on time is dangerous in multiple ways and maybe a lifelong financial regret. However, seeing the rising numbers of failures in paying the payday loan on time, 12-month payday loans have also been introduced.
The benefit cap, designed to encourage people back into the active professional profile, was pulled down in 2016; it limited the total benefit amount for each poor family leaving them more prone to borrow from private agencies at the higher interest rate. Any type of personal instant loan including the payday loan is the anytime credit facility that anyone can avail with least formalities. The direct lenders in the UK are regulated by FCA; so, most of the personal lending deals are offered at capped rate and terms. Whatsoever type of debt is owed, repayment is the prime responsibility. Before applying for any type of instant short term loans, planning for repayment must be perfect.