Whenever you’re looking for a new loan, it’s important to check the fees that you’ll be charged. This is especially important when you’re looking to borrow money on a payday loan. If you don’t know the rates that you’ll be charged, it’s easy to get suckered into paying more than you need to.
Regulation of the payday lending industry in the UK
During the recent economic crisis, there was a resurgence in the popularity of payday loans. Payday loans are short-term loans which are paid back within a month. The interest rate and total charges are usually high, but most borrowers repay the loan on time. However, many payday borrowers face high default charges which can result in a debt spiral.
The UK government is determined to protect customers from unfair payday loan costs. This has led to the introduction of a number of reforms, namely a cap on the amount of interest a payday loan lender can charge and the number of loans they can ‘rollover’. The new rules should help to ensure that payday loans are not the financial nightmare they are made out to be.
Fees charged by payday lenders
Getting a payday loan is a simple process. The loan amount is typically smaller than your credit limit and you will only have to supply your name and ID. Usually you will have to pay a fee of between five percent and ten percent.
Payday loans are often marketed as a way to get cash when you’re in a pinch. However, they can turn into expensive debt if you don’t pay it off quickly. This is because payday loans often have high fees and interest rates.
Most borrowers get into a cycle of debt by repeatedly taking out payday loans. When the loan is due, they are expected to pay it back within two weeks. However, many borrowers are unable to make the payments on time and will fall behind on their loan.
Alternatives to payday loans
Fortunately, there are alternatives to payday loans that can help you get out of debt. These alternatives are also more sustainable than payday loans.
Credit cards are another option. These cards offer cash advances at a lower rate than payday loans. They can be a great way to get cash for your emergencies. However, you will be charged a higher interest rate than other types of loans. If you can’t pay back the loan, you could damage your credit score.
You may also want to check out credit unions. They are community organizations that allow members to borrow money at competitive rates. They also have lenient loan qualification standards.
Unlike payday loans, credit unions are regulated by the Financial Conduct Authority. They consider factors such as your income and credit history before making a decision.