Payday Lenders

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Representative APR

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A single instalment Payday loan or Pay advances are short unsecured loans borrowed for a very short period of time. The time frame can between 14 days to around a month. The basic concept of payday loans is the lender providing unsecured loan to be repaid at the borrower’s next payday. The borrowers are usually form the groups with lower disposible income or those with lower amounts of savings where a sudden bill cannot be covered from these sources.

Borrowing Model

The traditional borrowing process involves the borrower visiting the payday lenders, to secure small cash loan and the repayment due date is next payday. Basic verification of income and employment is involved and a credit check is normally done. The lender will also perform affordability analysis to ensure that the loan is affordable.

With the latest development in technology, transaction are carried out online. The application form is submitted electronically and the accounts are directly credited through fund transfers, likewise the loan amount and the finance charges are electronically collected.

Legislations and Regulations  

The legislations regarding payday varies between countries. Different institution in different countries follow different rules and charge different rates however the Interest rates or APR (Annual Percentage Rates) are in some contries and capped by the laws. In the UK there is a reate cap of 0.8% per day along with other caps on default fees and the total cost of the loan.

Lenders

Payday loan concept emerged in US and is slowly gaining markets in other countries too. UK, Canada and Australia are recently emerged as exponential markets for payday loans. As mentioned earlier, the different countries have different legislation with regard to Payday loans, in US the legislations vary at state level.  Market ratio for the payday loan has increased almost four times in the Short term unsecured loan markets. Community Financial Services Association of America and Dollar Financial Group are respective key players in US and UK markets. The market approach through the retail network varies largely.   Where Dollar financial group has set up a network of around 1000 storefronts by acquiring the other players in the industry, the institutions in America make use of the sovereign status of Native American reservations, often forming partnerships with members of a tribe to offer loans over the internet which evade state law .

Economic Effect on Society

Payday loans are small loans with high interest rate that make up a source of loan or credit for many borrowers, mainly the high-risk ones. Payday loans can increase the economic hardships; for a few low-earning households, the burden of loans they borrow inhibits their ability to pay important bills.  A survey states that U.S. households lost almost 169 million pounds, resulting in bankruptcies linked to payday lending usage.

But these loans could be really useful to pay utility bills or even put food on table for people who have to live payday to payday. The loans can be granted promptly and then the money gets credited in the account of the borrower sometimes in a matter of a single day. The efficiency of these loans cannot be denied. However the borrower has to be careful to see whether they can afford the amount of monthly payment from their wages. Paying out a £100  loan along with a £24  interest may not seem a lot for some people but it could be a lot for a lot of families who rely on their monthly pay for daily necessities. Nowadays however the option of flexible pay day loan has come up which gives the borrower the opportunity to pay out their loan in an instalment of several months.

It is however a given that the loan should not be taken without a monthly budget plan being prepared and if needed advice being taken. Lender too will have to acrry out an affordability check of whether the borrower can actually afford to pay off the loan or not. Otherwise this could lead the borrower to fall in a spiralling debt trap.

Despite having quite a bad reputation a pay day loan could be quite manageable for some if they have a proper budget in place. If the borrower is not able to manage the loan they should contact the lender who will try to work out a situation which is more suitable for the borrower.