Now that the festivities are over and the bills have started rolling in some people may find their finances need a short term boost until their next payday.
A recent survey by Shelter has indicated that as many as 1 million homeowners rely on payday or short term loans to pay for their monthly mortgage or rent.
Another survey by Gimmedosh.com has shown that up to 50% of the people questioned would consider a payday loan if they had a need for short term emergency cash.
The high cost high risk short term payday loan sector had been growing steadily in the UK before the credit crunch in 2007-08. It has only been increasing in size and value in one direction, exponentially, since then.
Educating the Politicians and Consumers on payday
Payday loans seem to get a lot of media attention at the moment. Some of this is obviously spin by the campaigners and politicians who want to curb the natural growth of the sector and some is related to the mainstream media jumping on the bandwagon to get noticed by the online search engines.
Gimmedosh.com believes in responsible lending and likes to inform the consumer about payday loans. Their recent survey indicated that nearly 50% of people questioned didnât know anything about payday loans. They didnât know what a payday loan is, what the eligibilities are or the main terms and conditions on the amount and duration. It would be interesting to know what the percentage would be for the anti payday loan campaigners and politicians!
They seem to concentrate on the small percentage of borrowers who have difficulty in repaying a short term payday loan obtained from a rogue lender, who more than likely should never have leant the money to the consumer, and tend to adopt Victorian methods in debt collection to get their money back. They also focus on the worst practitioners in the market who have literally jumped on the bandwagon and are only interested in getting as much money from the growing UK market by charging extortionate interest rates (APRs) before the new bill becomes law in 2014, which will limit the interest that can be charged by all payday lenders.
It has been noted that 2013 will be the biggest year for short term payday loans, as most providers know that the market will change from 2014 due to the âcapâ on the interest rates (APRs) charged by them and other restrictions being considered by the Government in the Financial Services Bill.
This is a boon for the industry in the short term, but it is believed that many of the current providers will either go bust or move away from payday lending, as the market will not be able to accommodate too many players. So, for those providers and brokers that would like to stay in the market by following good practices and have a long term view about the sector and their own business, the future will be much brighter for the short term payday lenders.
Like all markets, the more competition the more choice for the consumer. The providers will have to improve their service, keep their interest rates (APRs) competitive relative to the whole market and most importantly have a good system in place in dealing with the borrower in case of any problem with repaying the original loan and the charge. So, market forces will always create the best result for the consumer, as long as there are proper controls and strong legislation to keep any rogue or poor providers out of the market. Unfortunately thatâs what currently missing in the UK market, but will change dramatically in 2014.
Most of the short term payday lenders covered by Gimmedosh.com have very strict criteria for accepting payday loan applications online. They confirm the borrowerâs age, residency, employment status and UK bank account before accepting any online applications. Some short term payday lenders perform credit checks, as they want to restrict their customer pool to a less risky one.