Payday Loans How They Work, Whats the cost?
Payday loans in the UK are loans of up to 500 pounds to be repaid until “payday” or over a short-term. In the restrictions on interest rates absence, the typical APR (annual percentage rate) for a payday loan can be 1,000 percent annual percentage rate or more. Typically, payday loans UK costs as much as 25 pounds for every 100 pounds borrowed per month.
UK’s Payday Loan Industry
The industry of payday loans UK has grown fast. In 2009, a total of 1.2 million individuals took out a total of 4.1 million loans. The total lending amounted to 1.2 billion pounds. The average size of the loan is between 265 and 270 pounds, and 66.67 percent of the borrowers have annual incomes that are below 25,000 pounds.
Failure to repay payday loans lead to spiralling annual percentage rate. The cost of getting a loan online (usually 25 to 30 pounds per month per 100 pounds) exceeds the cost of getting a loan on High Road (usually 13 to 18 pounds per 100 pounds), according to Consumer Focus. This is because lenders often reject fewer applicants, plus they face higher rates of default and fraud. The providers require a fee for this loan, often shown as a flat fee for every 100 pounds borrowed for the short period that is stated, usually around 25 pounds.
Under the Act Consumer Credit Act 1974, a payday loans lender has to hold a licence from the United Kingdom of OFT (Office of Fair Trading) to start offering consumer credit. Also, the UK’s Consumer Credit Act 2006 clearly requires the Office of Fair Trading to consider lending that is irresponsible when evaluating whether a lender is qualified to have a licence.
The United Kingdom does not impose any legal limit on the rolling-over loans, plus there are no limitations on the companies dealing with the interest rates payday loan can charge: one payday loans lender can charge a “typical annual percentage rate” of 1,355 percent, while other lenders can advertise an annual percentage rate of 2,225 percent. Most companies that offer loans payday charge 25 percent for an advance repayable that is repayable at month end. Several companies charge 30 percent, which is typically equivalent to an annual percentage rate of over 2000 percent.
How to Find a Good Payday Loan Company
To get an idea of the range and size of the best payday loans UK companies, comparison websites are helpful tools, as the OFT report recommends. It states that the Government of the United Kingdom works with industry groups in providing information on the high-cost credit loans to all consumers through price comparison sites. If that can’t be engaged on a voluntary basis, then the Government of UK should consider the matter of introducing legislation to create one site that allows consumers to compare all the features of pawnbroking loans, payday, home credit alongside credit unions as well as other lenders in who are in their local area.