Payday loans are currently receiving a lot of attention from the mainstream media, including the papers, online and television news. This is a good time to have a closer look at the sector from the customerâs viewpoint instead of hearing the so called âexpertsâ demonising payday loans.
Payday Loans Customer Type A
A young UK resident with a good credit rating, in permanent employment, with a UK based bank account, who lives within their means most of the time and doesnât use credit cards or their bank accountâs overdraft facility. They donât make any regular savings either.
So, at a time of a minor emergency, e.g. fixing their car or washing machine, some of this group have come to include a payday loan as an acceptable means of meeting their short term financial needs instead of borrowing money through a bank loan, credit card or ban overdraft.
This is because this type of customer doesnât want to be saddled with a longer term debt, whether from a 12 month unsecured bank loan or a credit card. In a way this type of approach forces the borrower to repay their debt quicker than with the mainstream methods, so contrary to all the storm in the payday loan tea cup, it actually keeps people out of debt!
Payday LoansÂ Customer Type B
An individual with poor credit history, in permanent employment (not necessarily full time), living in the UK, with a UK based bank account, who tends to dip in and out of their bank accountâs small overdraft facility on a regular basis, but doesnât use any of their credit cards.
The sudden need for a short term payday loan for this type of customer would most probably arise as a result of a serious financial emergency, e.g. repairing a boiler or extra cash for the Xmas period. But, why donât they use their bank account overdraft facility to cover the emergency? The usual reason is that the small overdraft is fully used and rather than asking their bank to increase their overdraft limit, which will then get used fully in no time at all, they choose to apply for a short term payday loan.
But, how can they repay the loan when theyâre obviously in financial difficulty? Some direct debits are quarterly, so the borrower would have budgeted for the amount they need, thus repaying the total amount of the loan on their next payday.
Payday LoansÂ Customer Type C
A UK based individual with a poor credit score, in a part time job, who has a UK based bank account with no other access to credit facilities, e.g. credit cards.
Short term payday loan would be as a result of living beyond their means, due to serious overspending and an inability to budget. Most of the main payday loan lenders would refuse this customerâs application. However, there are a few âloan sharksâ disguised as short term payday loan lenders that would consider lending to this type of customer, knowing there will be a decent chance that they may default and have to roll over their loan a number times. This loan would then very quickly escalate to 3 to 4 times the original borrowed amount, leaving the customer in a much worse situation than they started with.
This is where the payday loans sector has been getting a bad name for itself, not as a result of the responsible lenders in the sector, but those who have piggy backed on the success of these loans and have used unscrupulous methods to gain substantial profits while causing misery for many borrowers.
The short term payday loans sector has been encroaching on the mainstream unsecured personal loan market for many years with very happy customers who may borrow as many as 5 or 6 times in a year. There are obviously some providers that need to be removed from the market and the recent inclusion of a number of amendments to the Financial Services Bill will result many of them losing their licence.
Make sure you always use a payday loans company that is regulated by the OFT.