Payday Loan Companies Under Scrutiny
Published: 16 December 2011
By Julian Stone Leave a Comment
Updated: 16 December 2011
With many turning to payday loans to deal with an emergency cash flow problem, be careful is the warning, as the OFT (Office of Fair Trading) increases its scrutiny of companies offering such loans as the number of complaints rockets.
According to the OFT, the number of complaints Consumer Direct helpline received about payday loan companies have more than doubled in the first 11 months of this year compared with last.
Payday loan companies are coming under attack for breaking rules and not checking it a customer can afford to actually take out a short term loan.
Equally the whole premise of a payday loan is that it is a short term loan. If for any reason the loan is not repaid at the end of the agreed term, instead it is rolled over, the charges are significant. The OFT is investigating whether these charges are suitably explained as the concern is that they are not.
If the OFT considers a payday loan company is not adhering to set guidelines then it can withdraw that companies’ consumer credit licence or force it to change its way of working.
MoneyHighStreet comments: “Whilst payday loans can be a useful way of getting access to cash quickly, it is very important to fully understand the terms and conditions if you are thinking of taking out such a loan. Don’t be taken in by the glossy marketing, take time to understand what costs you are committing to if you take on a loan.
As many middle-income earners struggle with their finances, payday loans are becoming a more popular source of money across a wider range of people.
Few credit checks are made and you can get the money into your bank account very quickly.
An interest rate of nearly 450% may sound attractive when compared to other payday loan interest rates which can exceed 4000% APR.
But the critical issue is that unless you address your underlying problem, of your outgoing money exceeding your income, you will simply find yourself short again next month. Worse you may not be able to pay back your short term loan as you’ve added to the money you have to pay out.
Can you save money anywhere? Do you have a budget to help you manage your money, if not maybe it’s time to create one?
If you are certain you need to borrow money, are there other options you could consider? For example do you have any assets, such as a watch, jewellery or perhaps some art that you could use to secure a loan?
Of course you’d still need to pay off your loan but the worst case scenario could be to sell the asset to cover the loan.
Bottom line though is that if you are facing mounting debt you need to take action to tackle it – including get professional advice if need be. If you do opt to take out a loan make absolutely certain that you can meet the repayments.