Payday Loans: Do your research or you might get stung
Most consumers know that banks and traditional lenders will run numerous verification cheques to ensure applicants are trustworthy enough to repay a loan. These institutions will verify an applicant's contact information, financial history and credit report. Because of the stringent process, getting approved by a traditional lender can take days or weeks, depending on the lender and the amount.
Payday Lenders Are Different
But borrowing money from a loan website is a much different process. Instead of nit picking each portion of an application, the lender will simply check the most basic information. In addition, the qualification standards are not as high as those required by traditional financial institutions.
According to the payday loans website SimplePayday the most important aspect of a payday loan application is the individual's monthly income. These loans are not meant to be repaid over several months; they are designed to be repaid on the applicant's next pay day. This is why so much emphasis is placed upon where the borrower works, how much money they make and the frequency of their pay cheques.
Of course, there may be a few additional details that must be verified for those who are new applicants. Most payday lenders will contact the applicant's employer to ensure the applicant actually works there. Although the majority of lenders do not request supporting documents, the verification process will take longer if they do ask for additional paperwork. However, once these papers are supplied, the applicant is usually instantly approved.
There is other information on an application that must be verified before a potential borrower is approved
- First, the applicant will need photo identification to prove they are at least 18 years old.
- They will also need to provide their bank account information and many times, an attached cheque card is needed.
- The lender will also need to know how much money the applicant makes.
- There is usually a minimum income requirement.
Although it may seem like a lengthy process, payday lenders can verify all of the above information rather quickly. After the individual's application is approved, they can get subsequent loans much faster as long as they maintain a good borrowing history with the lender. The built-up trust falls on both the borrower and the lender.
Overall, the process in the United Kingdom is simple and straightforward. While cash advance applications are similar to traditional finance applications, short term loan paperwork only takes into consideration a few key pieces of information such as monthly income and valid banking accounts. As long as the lender feels the applicant can repay the loan, the applicant will be approved and supplied with much needed cash in a matter of hours.
The Consequences of Defaulting on Online Loans
Even though these loans are convenient, they do come with a certain risk in the event the borrower is unable to repay the loan. Therefore, customers should do their best to pay on time.
Loan Amounts and Interest Rates
For people who are approved, the average loan amount ranges from £100-£1,500. Most of the time, customers can walk out with cash in their hand after a few hours of applying. In addition, these loans are not required to be repaid until the borrower receives their next pay cheque. However, those who default are likely to face a few consequences.
Also high interest!
Cash advances borrowed against an individual's pay cheque come with a high interest rate when compared to loans from traditional institutions. Online lenders have an annual interest rate of 400 percent or more. However, these loans are designed to be repaid within weeks; therefore, the interest rate is manageable. For every £100 borrowed, the average person pays anywhere from £15-£25 in interest.
Because short term loans are not based on credit reports, the individual's credit status is not based on their credit standing. This aspect is what attracts so many consumers to these companies. The main requirement of an online lender is that the applicant makes a certain income amount and has been with their current employer for several months.
As with any type of loan, there are consequences for those who default on a cash advance. Sometimes, the lender will reduce the amount a borrower can get for subsequent loans while other lenders will not do business with that customer again. However, there are options for repaying a loan when the payment cannot be made on time.
Options for Customers
who think they are going to default
A customer can request to extend their payday loan until they get their next pay cheque. This can be accomplished by paying only the interest amount. However, doing so can create a viscous interest-and-fee accumulation cycle. In some cases, the lender may be willing to offer a payment plan that allows the borrower to make smaller payments throughout a longer time period. Although rare, a loan company may let the borrower give them a "collateral cheque." If there are insufficient funds when the cheque is cashed, the lender will take all legal measures to collect their money.
Finding a reputable lender
Because the United Kingdom is saturated with payday lenders, the competition among operators in the industry is fierce. This has prompted some unsavoury institutions to work outside the confines of the legal system, putting the welfare of their customers to the wayside. Unfortunately, people who are not well-versed in the industry are duped by unscrupulous businesses time and time again.
Lenders to Avoid
However, there are ways potential borrowers can avoid having dealings with a shady lender. First of all, consumers are warned to keep away from online lenders with no verifiable physical address. Lenders without an established reputation or those who request customers pay an upfront fee should also be avoided.
People who plan to obtain a loan online should conduct a little bit of research beforehand. Use a search engine to gain information about a particular company. Lenders with a slew of bad reviews should be passed over. However, one needs to be aware that negative reviews are not always accurate.
Many reports are biased because the writer was unable to repay the loan and is upset about the action took by the lender even though the lender followed the governing laws of claiming a payment. Other poor reviews may be written by disgruntled former employees. Therefore, consumers are advised to use their best judgement.
When it comes to finding a trustworthy lending institution, consumers have a lot of options. There are many review websites and forums that provide detailed accounts of personal experiences. Both types of sites are not only safe and convenient but also great sources of information that can help people avoid the unfortunate mistakes made by other borrowers.
UK payday loan companies with a website should have the industry's applicable licensing and accreditation. All lenders display this information in plain sight for every potential customer to see. Lenders with an official license are held accountable by a wide governing body; therefore, those who do not follow the rules of the industry will have consequences to face.
There is always the possibility of coming across a "fly-by-night" lender who operates online and disappears once people discover they have been taken advantage of. In this case, the borrower finds out that getting a loan was much more trouble than it was worth once their bank account is compromised and drained, which is an all-too-common scenario. As when doing business with any other financial institution, it is suggested that consumers seek only trustworthy payday websites with a long history of reliability.