Bank charge debate sheds light on role of Payday Loans
(20 March 2006)
Payday loans come sharply into focus as a convenient, viable and problem-free method of gaining short-term credit when posed alongside the problems afforded by the many fees and charges imposed by other longer-term forms of lending.
The recent announcement that the OFT (http://www.oft.gov.uk) is to publish recommendations concerning the late payment and unpaid item charges levied by banks and credit card providers has cast some of the pitfalls of longer-term credit sharply into focus.
Many of the country's biggest financial providers impose fees of, typically, £25 for late payment of bills, exceeding of credit limits and overdrafts or failed payments. Unpaid items can sometimes cost as much as £35 to the account holder, and these costs rack up - often exacerbating the financial woes of those who are already experiencing problems and frequently being charged with little warning or explanation.
What is more, these charges come on top of APRs - which themselves prove to be a considerable long-term drain on finances once a card or loan service has been committed to for a period of time.
The OFT, which last summer warned eight providers about their "excessive" charges, is therefore set to act – although it remains to be seen whether some of their predicted stipulations, such as a possible capping of late payment fees at around £15, do enough both to convince customers and to assuage their financial concerns. The worry is that, with many people falling foul of the charges serially, they will still be losing out at an unacceptable level and the proposed changes will make little significant headway.
With millions of Britons relying on their credit cards for even the smallest of purchases, or to foot the bill for special occasions, the likelihood of getting stung by surprising charges is high. With better options for shorter-term expenditure on the market this need not happen – and indeed a new product is on the market which allows customers to borrow small amounts of money, between £80 and £1000, and repay them the following month on payday.
Taking out a "Payday Loan" can serve several purposes in the context outlined above if your needs are for the shorter term. No longer will you have to commit yourself to a minimum loan of £1,000 from an alternative provider when smaller loans which may fit your purposes more are available. Your short-term loan provides you with a one-off monthly payment whose fees are lucid and fixed – with no extra interest and no hidden charges. The customer's repayment is one-off and stands alone.
A cash advance of this kind can also serve as an alternative to a longer-term loan or credit card deal if you have a particular small, short-term outlay to cater for – unexpected or otherwise. Although APRs seem higher at first glance, the true cost is actually cheaper than using a revolving facility which you don't pay off regularly as the charge is fixed for one month only rather than continuously accruing interest.
Research last year from Moneyexpert showed that banks' charges have increased by around 30 per cent since 2003 – so a cut of, for example, 40 per cent by the OFT would not necessarily go a long way towards revolutionising the nation's longer-term debt situation.
With a number of big-name providers having written off millions of pounds' worth of bad debts recently, and thus becoming far more stringent with regards to who they provide credit for, there is an argument to suggest that they themselves would benefit from scrapping fees altogether when looking beyond projected profits.
Lisa Taylor of Moneyfacts hinted at this when she recently commented: "Imposing more debt by the way of fees will not solve the problems faced by these consumers." By extension, the financial providers are not helping their own causes either.
With the OFT's pending announcement not likely to provide earth-shattering changes, it is important to give a bit of thought to the options available when trying to find the cheapest and most convenient form of lending for your needs.
Reputable payday loan companies like My Payday Loan (http://www.mypaydayloan.co.uk/) could advise you if term loans are more suitable or otherwise look to provide you with your short term cash needs within 24 hours of approval. The service is fast, transparent and does not harbour charges or caveats which may return to haunt you months down the line.
© Adfero Ltd
