With all the talk of regulation surrounding payday loans, you would be forgiven for avoiding them like the plague. However, what you may not have thought about is how to use a payday loan properly and get the most out of it. Read on for an a-z on how to use short-term credit facilities the way they are designed to be used.

Regulations – how do they impact me if I am looking for short-term credit?
In case you have not heard of all the discussion of regulation relating to the short-term credit sector, here is a quick explanation. In 2014 some curbs were introduced to give customers of payday lenders a better deal. Payday lenders are not allowed to charge above a certain level of daily interest for short-term credit.

Additionally a thing called “recurring payments” (sometimes called a continuous payment authority) has been regulated such that payday lenders are not allowed to make more than 2 attempts to take money from your account.

Further, default fees have been capped. In the past payday lenders were allowed to charge larger default fees (for cases where people fail to repay loans on time). Now, the cap prevents cash loans from sites like Wonga from charging more than 15 GBP for a default fee. This “protection” in the form of capping has proven controversial though, as lots of payday lenders, particularly short-term credit giant, Wonga are being forced to create redundancies and hike the cost of credit products in order to compensate for regulatory compliance costs.

Another protection that has been put in place is what is known as the total cost cap. This means that payday lenders are not allowed to charge more than 100% of the original loan sum, even in circumstances where the recipient of the loan default.

Some tips if you want to get a payday loan
So with all these protections now in place, a lot more people may decide they want to get a payday loan. Here are a few handy tips to help you get the best out of a payday loan.

Use them in emergencies
Some people think that payday loans should be used regularly for groceries for example. However, this is not how payday loans are designed to work. They are meant to be used in emergencies such as where your heating breaks down, or where your car breaks down. Getting recurring payday loans is a recipe for disaster and people should only turn to them in an emergency.

Pay back the loan on time
Short-term credit is not designed to be repaid after more than a few days, so if you repay the loan on time you only pay the amount of interest intended, for example a loan of 100 GBP can attract in the region of 24 GBP in 1 month.

What do you think?
Do you have an opinion of the payday lending sector and how to get the best out of a payday loan? Maybe you got a loan and would like to share your experience, thoughts or tips? Post a comment and get the debate started.

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