10 top tips when it comes to payday loans

YET more Scots are expected to take out risky payday loans over the coming months as the government’s latest austerity measures bite, even as the consumer watchdog cracks down on a sector it deemed guilty of “widespread irresponsible lending”. Ideally, payday loans would be avoided altogether. But with many Scots resorting to them in a bid to ease financial pressures Sharon Bell, head of StepChange Debt Charity Scotland, shares her top tips on how to avoid being caught out. DON’T DO IT This is the simple answer. Going to a payday loan lender may seem like an easy solution to a pressing problem, but watch out – they can carry interest rates well over 2,500 per cent APR (the annual interest rate). If you cannot repay it fast and in full, your debt problems can easily spiral. If you do manage to repay it, you may then not have enough to live on until next payday. Avoid thinking it would be sensible to take out another loan – you may become reliant on them and your situation will get worse. LOOK ELSEWHERE Consider your alternatives. What about friends or family? Have you worked out a budget based on your income and what you spend each month? Can you make savings? Exactly how much unsecured debt do you have? Have you anything to sell? Can you boost your earnings? Are you receiving the correct benefits? Facing up to these details is a crucial part of understanding your finances. If you really feel there is no alternative to a payday loan, take a moment to talk it over with a free debt adviser before you do. READ THE CONTRACT Know what you are signing up for and understand that a payday loan is meant to be temporary. Unlike a short term loan from a bank, it will accrue massive interest if you don’t repay it promptly. Also know that lenders will usually request you tick the box for continuous payment authority (CPA), giving them permission to take payments from your debit card bank account, even if the funds aren’t there. Make sure you agree the payment amount and how often it’s taken. If you can, use a direct debit, standing order or even opt to pay manually by cash or cheque. CHARGES If you can’t repay the loan on time you will be charged extra to extend it. Interest will also be charged until it is repaid. The lender will keep trying to take payments from your account, even if you’ve said you can’t afford it, and your bank is likely to charge you too if there isn’t enough money in your account. If you’ve agreed to pay by cheque and it bounces, you will be charged by your lender and your bank. HELP Get help quickly if you have debt worries. Almost half of those who ask StepChange for advice wait over a year between realising they have a problem and seeking help, while 35 per cent keep their problems secret from family and friends. No matter how serious your debt is, know that you are not unique and help is available free from StepChange Debt Charity by calling 0800 138 1111. STOP IT If you know that you can’t meet a repayment, cancel it before the lender takes it. This is trickier with CPAs than direct debits, but it can be done by contacting both the lender and your bank. If you are unsure how to go about it, use the template letter at www.moneyaware.co.uk NOW WHAT? Once you’ve stopped the payday loan or text loan company from taking a payment you need to start thinking about alternative ways of paying the debt. A debt adviser can help by setting out a budget, showing what you can afford to pay towards your debts. They will also be able to give you advice on how to deal with them. INSTALMENTS? If you’ve not got the money to repay the loan in a lump sum the only remaining option is to pay back in instalments. Ultimately it’s down to the lender what it might accept, but if it knows you’ve had debt advice and you’re offering a reasonable amount based on your budget, there is a good chance of getting something agreed. If it agrees to accept lower payments it’ll usually – but not always – lower or freeze interest and charges. ROLLOVER (AND OUT) Think about it – “rolling over” the loan or taking out a new one means it will have to be big enough to cover the amount you originally borrowed, plus the interest of the first loan, and you will have new interest added on top. This can start a vicious cycle of snowballing problem debt. So STOP, and get free debt advice on your options. SPEND WHAT YOU HAVE Living without a budget is like walking around blindfolded – sooner or later you’ll hit a wall. The first step to reining in your spending is to write down your income and outgoings. But don’t be too hard on yourself if it seems too much – you’re now aware of what you’re spending and can take better control of it.

payday loans

From time to time most of us will find ourselves short of cash and may need to seek out some financial help until payday arrives. In today's economic climate, with rising prices and wages not keeping up with inflation many of us are finding it more and more difficult to make our wages stretch to the end of the month. Many people are seeking payday loans to fill this financial gap. With lenders giving access to easy credit in the past and people finding themselves in debt as they could not manage repayments, lending responsibly has become paramount with lenders pledging to not lend money to people whose financial situation is not suitable, or encouraging people to borrow more than they can afford to pay back. Lenders are also obliged to lend responsibly through the banking code which is a self-governed set of rules which ensures they do not lend to unsuitable customers who are likely to get into debt. It also includes a responsibility to treat customers appropriately and make sure their financial situation does not get worse as a result of further lending. Part of lending responsibly is to carry out adequate credit checks before authorising a loan. Getting a loan can seem too easy with the convenience of text loans but lenders must still carry out some basic credit checks first. They may not be as thorough for payday loans as they would be for another type of loan but nevertheless, certain criteria are still checked before lending. They will check your credit history, a record of previous and current lending, previously denied applications and your historical ability to repay debt. It will highlight any history of bankruptcy and ensure your application is genuine. These checks can be quick and you could have authorisation for a loan within a day or even sooner. The reasoning behind these checks is to ensure the safety of both the creditor and the lender. It should provide a level of certainty that the creditor will get paid and the lender will be able to manage the repayment schedule without getting into financial difficulty. If you are applying for a payday loan you should be aware that this type of loan is not suitable for long-term borrowing. If you require money over a longer period you should investigate other types of lending as a payday loan is only suitable for short periods as interest rates and repayment terms are different to that of a credit card or fixed term bank loan for example. If you have a bad credit rating you may be refused, or if the creditor considers you eligible but high risk you may still be able to borrow, but just for a smaller amount to make sure you are able to meet the repayments. Before you take out a loan make sure the loan provider has given you clear and complete information on the terms and conditions of the loan. The APR and any charges should be clearly highlighted so the customer does not face any nasty surprises. Stating the terms and conditions clearly also helps the customer compare loans so they can find the one that suits them best.

Text Loans

Text loans are becoming an increasingly popular way of overcoming short term financial difficulties for thousands of people in the UK. There are now numerous lenders available online who are willing to loan small amounts of cash (£100-£500) over a fixed period of between 7 and 30 days.

All text loans will still require an initial online application completing and possibly certain documents faxing to the loan provider to verify some or all of the details. Once accepted, the client will then receive their money by bank transfer, directly into their nominated bank account.

At the same time they will also be issued with a unique PIN number which can be used in the future for the purpose of applying for additional loans. One simple text message quoting the PIN number and the amount required will then generate an almost instant payment into the client’s bank.

As with all financial transactions, honesty is the best policy; reputable loan providers want to be able to help on a short term basis, not lend money to clients who cannot pay it back. The initial application should be filled in accurately, honestly and without omissions.

The main aims of the application from the lender’s point of view is proving the client’s identity as well as confirming the existence of a bank account and proof of income. This is the reason, some lenders will also require certain documents faxing to them, to corroborate the information contained in the application.

Generally speaking, text loan lenders have certain requirements of their potential clients:

• Must be 18 years old or over

• Able to prove an income of at least £400 per month from employment or self-employment

• Have a UK bank account in their name capable of handling Direct Debit transactions

• Not have been made bankrupt or have County Court Judgments (CCJs)

Applicants who fall outside of these parameters are likely to be rejected by any reputable lender, but requirements do vary from lender to lender.

Some lenders have additional reasons for refusing clients, not lending to students for example, whilst others are slightly more accommodating and will even lend to unemployed clients provided that they are receiving sufficient income from benefits to afford repayment.

Text loans do tend to generate a very high APR (Annual Percentage Rate). This is because they are considered ‘high risk’ and are not intended as anything but a short term solution offered for a maximum of 30 days.

Although text loan providers are required by law to clearly state their APR, they will often show an example of the cost of borrowing from them as well e.g. a £100.00 loan, repayable after 7 days would incur an interest charge of £10.00.

Text loans should never be considered as a long term financial solution and careful thought should be given before taking one out. If the repayment is not made on the due date, the financial penalties are very high and future borrowing may be refused or restricted.

Short Term Loan

Emergency financial needs can arise at any time for an individual. Many people tend to seek the assistance of a short term loan in that kind of a situation. Short term loans can be considered as an ideal way to find money within a short period of time with less hassle. When you go for a short term loan, you won’t have to pay a lot of fees back, like in long term loans. When you drag the loan for a long period of time, you will have to pay a large amount of money. Even though the rates of short term loans are higher than long term loans, you will not have to pay a bigger amount like in a long term loan because you will settle the full amount within a short period of time. That can be considered as the main reason behind the popularity of short term loans. When you go for a short term loan, you will get the opportunity to receive money within a short period of time. Most of the people who borrow short term loans pay them back during the next pay day. Therefore they are also known as payday loans. Payday loans and text loans are borrowed to pay for something that happens before a warning like an emergency hospital bill. Short term loans are ideal for a situation like that and you can get the money to your hand within a day. However, you should fulfill some criteria in order to be eligible for a payday loan. You must be at least 18 years of age and you should have a regular source of income. You don’t have to worry about your bad credit rating to obtain a short term loan. You can fill up the application and submit it to the payday loan lender and they will lend you the money right away. Therefore some people even use short term loans to build up their bad credit rating. You can even change the repayment amount and the date for your convenience. Payday loan lenders will display the repayment amount when you go to obtain a short term loan. Therefore you will be able to have an idea about the amount you have to pay back while obtaining the loan. The payday loan lenders offer the money in a secure way and they will protect your identity as well. After submitting the application, you will be able to get the money to your bank account within half an hour. Therefore you can go for a payday loan during an emergency money requirement without thinking twice. You can pay back the amount within 8 to 20 days and that time period will differ from lender to lender. Cash loans are ideal for any person to find money during an emergency without going for debt. If you are looking to obtain a payday loan with less hassle, you can do some research on the Internet and find a good lender.