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Short term loans and considering your options

Over the last decade many thousands of us have used short term loans as a means of assisting our short term financial needs. Short term loans have become common place within the financial market and currently serve a large number of consumers. These lenders now share the marketplace with the more traditional borrowing resources; such as the banks and credit card providers for the prime sectors. Whereas short term loans were once considered a somewhat ‘underhand’ resource, consumers are now more confident in turning to them for small loans and this is thanks to some major changes within the market place. In the last few years the regulating body for the market has changed and as such the entire operational stance of short term loans lenders has had to change also. Nowadays short term loans are regulated by the Financial Conduct Authority (FCA) and as such the practices and procedures used by lenders are more consumer focused and consumer friendly than ever before. What the FCA have achieved is to ensure lenders remaining in the marketplace operate in a manner which is able to provide affordable lending resources to consumers in a manner which is fair and flexible to those customer’s needs. Today we will be discussing these changes in more detail to understand just how far the market has come in the last few years.

In the early days of the short term loans market there were escalating numbers of lenders all offering a very similar and restrictive products.

The product itself was named the “payday loan”; a name which has stuck with the market ever since. The payday loan allowed consumers to borrow a small sum of money via either a storefront or an online application process and if approved the borrower would agree to repay the loan on their next employment pay day; hence the name. Given the sheer volume of lenders in existence it was easy for consumers to borrow in this way, in many cases from multiple lenders at any one time. The fact that this form of loan was in its infancy, enabled a customer to make further multiple borrowings due to limited credit references files available for the lenders to refer to. As such, many consumers found themselves in receipt of a number of loans, all due for repayment as a lump sum on their next pay date.

It is little wonder that such practises led to FCA intervention. It was obvious that changes needed to be made to ensure the short term loans market was able to better meet the needs of consumers who needed to borrow in this manner. With regulation from the FCA, modern day lenders are required to lend in a more considered and responsible manner. This includes only granting loans where it is realistically affordable to do so. Not only have the processes used by lenders to approve loans become better, but in addition the product being offered is more flexible. Nowadays instead of having to repay short term loans in a singular repayment, many lenders are offering the opportunity to repay loans in monthly instalments and therefore making repayments more affordable to those individuals who are better suited to such repayments. While this makes the overall cost of the loan higher, this is often much better than not being able to make the scheduled payments.

Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

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Author: Internal Marketing Department