Lenders Respond to Critics of Payday Loans

This week has seen payday loans come under criticism from debt advice groups who claim that some companies are charging excessively high interest rates on this type of loan. The debt advice groups are calling for a cap on interest rates for payday loans however, the Office of Fair Trading (OFT) responded to this by stating that payday loans would be covered by investigations of the issue of responsible lending and that although the loans, often used by people to tide themselves over until they get their wages, generally attract high rates of interest, the businesses offering them are properly licensed, professional and responsible.

U.S. payday loan providers also responded to the criticism by explaining that higher interest rates are levied on payday loans to reflect the level of risk being taken by the lending companies.

As one would expect, the payday loan companies claim they are providing a valuable service to customers who may be unable to get credit elsewhere. However, this claim is supported by the rapid rise in popularity of the products offered by the payday loan companies as they provide a real alternative to unauthorised overdraft charges, pawnbrokers and loans from friends or family.

Payday loans do not involve a credit check and for this reason they are sometimes referred to as bad credit loans. No credit check means that these cash advance type loans are therefore available to those who are unable to get other forms of credit such as credit cards, traditional long-term loans or overdraft facilities. The loan companies do however require proof that the applicant is currently employed and that their next pay cheque will be more than sufficient to repay the loan in full.

Many payday loan customers report that by getting a payday loan they are able to resolve their immediate cash-flow crisis and buy themselves a little bit of breathing space in which to assess their finances and to get advice on how to manage their money better.


Benefits And Cautions Of Payday Loans

Although credit card debt is high in most countries of the world, people are still hesitant to take out personal loans or other short term solutions to their financial crises because of fear of creating greater debt problems. These fears are very valid, but a solution may be the option of payday loans that allow access to money quickly but repayable over a very short period of time.

Most countries of the world have financial institutions that allow these loans to be taken with limited paper work and almost immediate access to funds. The repayment rate can be within a period of approximately 6 weeks and generally are designed to assist an immediate cash need until the next pay day is due. Hence the name payday loans. The very short repayment terms provides the ability to budget the repayments and the interest rate without fear of unexpected other bills or cash needs interfering with the ability to repay the loan in the contracted time frame.

The key to taking a loan responsibly of any type, long, short or pay day is to plan before you take the loan out and not to act on impulse. Consider very carefully your ability to repay the loan and do not create problems for yourself to take out and over commit to too many loans.

If you find yourself in financial stress, if possible seek professional advice from an independent financial expert before you use one loan to repay another loan. In some States of the USA there are now restrictions on how many loans an individual can have at any one time and working within these guidelines may provide the help you need to access a loan repay it and not find yourself in more financial stress.

Payday loans are very easy to access and offices are usually located conveniently as are the online access points. They are secure and require little information of a sensitive nature and therefore most people who apply for them regardless of their financial and personal status can access them.

The requirements to be approved for a loan are fairly similar in most countries. You must have a bank account, a regular income and be over a certain age and a citizen of the country you are applying to for the loan.

Anyone who meets all these requirements will be approved for almost immediate access to money paid directly into their bank account and usually within a few hours of approval.

The repayment options for the loan usually require repayment at the time the next pay is due with an interest fee payable at the time the loan is repaid in full. If an individual can not repay the loan, there are added charges incurred.

These type of lendings are a valid and appropriate solution to cash flow needs, but must be responsibly and carefully managed. Plan and project needs before you apply for a loan, appreciate the benefit of repaid debt and focus on repaying the loan in the contracted period.