Payday Loans

The course of events experienced world over during the 2008 financial crisis, played a significant role; in shaping both the current UK commercial and business scene, which is now seen to be having massive impacts on the functioning of the public sector. Similar to that which is being experience across Europe and the wider world. The root cause of the same has been traced back, to the deregulation of financial markets in the UK, the USA and the Western European economies that started in the 1970s which had gained pace in the early 1980s. This enabled organisations to function upon a wider range of territories and activities, due to the sweeping away of the government and other regulatory controls. The 2008 financial crisis and subsequent recession, lead to limits on liquidity, reducing the rate at which retail banks lent to both small businesses as well as individuals.

Payday Loans

Henceforth, there were a number of reasons for households, and individuals alike to seek alternative means of cash advances; owing to the prevalent rising costs, stagnant wages and uncertain employment. This lead to high-cost credit firms as well as most notably payday loan companies, who had the advantage of the supply side of this credit to seize upon the opportunity that it provided.

Individuals that are most likely to be seen opting for payday loans, come from a cross-section of persons of both sexes, varying ages, marital status, socio-economic and income backgrounds. More often than not, consisting of individuals who have a history of poor credit, and limited access to other forms of cash advances. Others are seen to consider payday loans, as a means of convenience, due to the relatively easier application procedure, as well as the speed at which the money is transferred.

The respective payday loan company, would effectively inquire into the individuals, pay stub, pay day (when you are going to get paid), and some recent bank statements. This is done in order to know that you will indeed, get paid, a salary or payment by your employer effectively in the next two weeks; regardless of your current negative credit. This is done in order to verify your ability to pay back the loaned amount. Following which, one is required to write an advanced cheque which is inclusive of the interest rate on the loaned amount. For example- every 100 pounds borrowed would have an interest rate of 25 pounds, which are typical numbers for pay day loads. So if a person was to borrow 500 pounds, he would be writing a cheque for 625 pounds, dated to fall into effect two weeks from the borrowed day. The borrower then has the option of going back to the company in order to repay the loan in cash on the stated date, or the failure of which would lead the company to cash the aforementioned cheque themselves. This ensures that the payday company has first dips on the money the individual receives. This being the general idea behind the functioning of a payday loan.

Effectively, an individual is paying 25% interest per two weeks. If we were to calculate a simple Annual Percentage Rate (APR), which takes your 25% and multiplies by the number of periods in the year, which can be further broken down to 26 two week periods in a year. Once calculated this amount equals to 650%.  The above being a simple example of an annual percentage rate; which brings one to question the credibility of the interest rate charged by such payday loan companies, in comparison to what credit card companies are charging you.

However, the facts having been made evident, people continue to opt for payday loans at large. In fact, for some payday loans are an absolute necessity for survival. Borrowers are drawn by the flexibility of these loans. One receives quick cash in hand, there are fewer questions asked, such loans are not tied down to extensive paperwork. It does away with the embarrassment that one would otherwise deal with, when faced with borrowing money from other known sources. Flexible payment options are available, where one can opt for flexible repayment if you are sure you cannot pay it all back from your next pay check. One can choose the roll over option that allows you to roll over your principal over the month by paying additional interest. You are not faced with the requirement to provide added references.  Payday loans, also enjoy the appeal of online applications and repayment, which keeps in tune with the technological convenience of the fast globalising world.

The aforementioned details are subject to the company one is dealing with respectively, most of whom defend their charges and repayment practices by setting them against operational costs. Customers are claimed to be making an informed choice, aware of both the costs of borrowing and the penalties for missing the date of repayment. Their opponents such as consumer groups, debt charities, government agencies and the media alike, disagree with what they lay claim to, on grounds of the lack of transparency in the cost of borrowing; misleading advertisement, inadequate assessment of credit histories and loan affordability and aggressive debt collection. This is in  addition to the lending of money to individuals below the age of 18, harassment of late payers, encouragement of loan extensions, brings to light the reasons for the infamy of the current status of payday companies.

What comes out of this is the absolute callousness with which the lenders have managed this industry and this has been supplemented by the lack of regulator interest in subsidising the scale of their operations. This has led to a majority of the lenders thriving in a free market and becoming accustomed to that kind of freedom in their operations. When the time comes for strict regulation, which is already seeing a considerable amount of support from most of the financial experts, these lenders will have nowhere to go and will continue to leave the industry in the manner they have.