Are payday loans legal in the UK?
Are payday loans legal in the UK?
Are payday loans legal in the UK?
Yes, and they are currently the only legal lending solution for anyone looking for a short term loan. Whilst they are legal, they can be problematic, especially if unmanaged. So if you are interested in utilising a short term loan company, then you should do your research and have think to yourself if this is the right lending solution for you.
There has been a lot of talk in parliament about the regulation of such loans, with the possibility of introducing legislation to improve communication and clarify every aspect of these loans, just so the borrower knows exactly what kind of a loan they are getting and the consequences of not paying the money back.
Not only are payday loans legal, the process of 'rolling over' is also legal too. This process is whereby a borrower, who is unable to pay back the money in the first instance, arranges to roll the debt over until their next pay cheque. This isn't recommended as putting off the repayment will only increase the total value of the loan (and you may even incur late payment charges on top too). Not every payday loan company will operate a roll over service, so it's always worth checking beforehand.
As mentioned, payday loans are an excellent short term financial solution, if managed properly. The issue of 'rolling over' is an excellent example of letting this type of a loan get out of control. Therefore it is advised that you make sure that you're able to pay the money back on your next pay cheque.
To give you an idea of the scenarios in which you should apply for a short term loan, you should be able to assess whether or not it's suitable for you. First of all, think whether it would cost you more money in the run if you didn't take out a payday loan.
This could be, for example, if you had utility bills to pay for. If you leave them, you will be charged late payment fines, if the fine works out to be more expensive than a payday loan, then you should have applied for said loan.
The interest rates for pay day loans have given them a bit of bad publicity, especially with figures of up to 2000% Annual Percentage Rate (APR). However this doesn't mean that you will have to pay back 2000% of the loan, only if you haven't paid it back within a year. Considering you will pay the loan back within a month, it usually works out that you will pay back between 20 and 25 per 100 you borrow.
Therefore, when repaying utility bills, if the fine they are charging works out more than the total cost to take out the pay day loan, then you should consider this short term financial solution. Along with other scenarios such as emergency repairs to the house or car; for example, say if you have a burst pipe, but can't afford to do anything before your next month's wages. The resultant damage could cost you so much more in the long run.
Payday loans are incredibly easy to apply for. Unfortunately this is also why they are abused and mismanaged. There are certain considerations needed before applying, for example you must be in employment, earning at least 500 per month (but can vary between lenders) and you must have a bank account.
Every step should be taken to make sure that you can pay the money back on your next pay day; it's in your interest to do so. Considering these types of loans are the only legal short term lending solution, if managed properly, they are an ideal way to deal with any emergency financial situations.
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