A payday loan is a small and short term unsecured loan. These are named that way because the loan is traditionally paid off on the payday. The loans are sometimes known as cash advances which is in lie to a credit card. And it relies mainly on the previous payroll and employment records as there isn’t any contract involved between the lender and the borrower.
Legislation on such loans vary in every country. Pay day loans in the United Kingdom can be loans upto 500 pounds which will be needed to be paid in a month. And the interest regulations on a typical loan costs as much as 25 pounds for every 100 borrowed per month. It has become the most widely used loan service in UK since its introduction. More than 1.2 million enjoyed the ease of a payday loan in 2009 and it has become much more popular since then. As there’s no regulation on the payday loan’s interest rate, a lender can charge typically anything. Though they are bound by the competition and charge APR of 1355%. However the government is considering to put a cap on such loans. A failure in the payment of the loan may mean an increase in the interest rate which is going to pile up.
A pay day loan company can increase their profits multifold by employing broker networks. They are termed as loan finder services and it includes a broker fee which is paid up front. There are brokers that help applicants of a payday loan avoid paying the high rates of interest that these companies put forward while applying in the UK.
No matter how popular these have become in recent days, the payday loans have welcomed a lot of criticism in the short term loans market all across the UK. People believe that these loans are the major cause of unbelievable amounts of personal debts across the country. This is because of no government regulation on the interest rates on these loans. On failure of payment, the interest piles on uncontrollably rendering the borrower helpless. These loans may be attractive because they are small and are supposedly should be paid within a month, but many fall into the trap who don’t have enough money and end up having themselves stuck in a debt. Since there’s no interest rate regulation, many companies don’t at all show up APR in their advertisements. There are many cases where the companies tried to manipulate people who have taken the loan which itself drew a lot of criticism.
No matter if people like it or not the payday loans are here to stay and do more benefit than bad. Many have taken a lot of advantage of these small and short time personal loans. There may be some cruel people who are wanting the bad from people. Soon the government regulation will make the business clean and good for everyone to have a payday loan.