New Payday Lenders

New Payday Lenders

Payday loans have become one of the most popular forms of credit over the past few years. It’s led to a boom in the setup of new payday lenders, as they seek to cash in on this lucrative market. Up until now, new lenders have been left to provide their services without too many regulations. Now, as the Financial Conduct Authority prepares to take over from the Office of Fair Trading, new stricter rules have been announced.


What the new rules mean for lenders


There are a few new rules being put for consideration by the Financial Conduct Authority. These include:


•New affordability checks


•Limit on extended loans


•Misleading adverts banned


•Free information on debt help has to be given


The main rule that is set to come into place next April will be an ‘affordability’ check for borrowers. The lender will have to basically double check that the borrower can afford the loan they are asking for. At the moment many payday lenders don’t carry out any checks at all. Providing the borrower has a bank account, is over the age of 18 and is in full time employment they can typically lend up to £1000. With these new rules being put into place, this will completely change. 


The goal is to try to protect consumers. Many people borrow what they simply can’t afford when they are desperate. There are some new payday lenders who actively prey on this desperation. Of course, it’s only the untrustworthy companies that need worry about the affordability check. Genuine lenders who care about their customers have nothing to worry about. 


There’s also going to be a limit put onto the amount of times a person can extend a payday loan. Borrowers will only be able to roll the loan over twice. This will prevent them from paying huge levels of interest. The rates on payday loans can be up to 4000%. As that’s an annual rate it doesn’t apply for the first month. You’ll typically end up paying around £20 for every £100 that you borrow. 


However, it’s when you start extending the loan that those interest rates start to make a difference. The more times you extend it, the more debt you will likely get into. The new limit will really help to protect customers. It’s definitely a tough time for new payday lenders to start in the industry. 


All misleading payday loan advertisements will also be banned. This will help to prevent consumers from getting into something they don’t really understand. They will also have to feature clear risk warnings too. If a consumer does roll over the debt, the lender has to provide free information on debt help.


If lenders break these rules they will end up facing unlimited fines. The government and the Financial Conduct Authority are starting to really crack down on the industry now. However, they are keen to note that they aren’t looking to stop people using this type of loan completely. They are well aware that if they make it too hard for people to benefit from a payday loan, they may end up turning to loan sharks instead. The new rules are designed purely to protect the consumer. 


Things to be aware of when taking out a loan


Payday loans can be an excellent way to get additional cash when you need it the most. However, due to a lot of misunderstanding, consumers often end up misusing the loans. It’s then that debt problems can become a real worry. 


When thinking of applying for a loan you really need to be sure you can afford the repay it at the end of the month. These loans aren’t like standard loans – they need to be paid back in full plus any additional interest on your next payday. Even if new payday lenders don’t ask you about your finances, it’s down to you to know what you can and can’t afford. 


You should only ever use a payday loan as a last resort. They are there for emergencies. You could need to pay out for car repairs or unexpected vet bills for example. If you start needing a payday loan to pay for general things like food and utility bills, it’s time to seek debt help. There are many organisations out there that will provide free debt advice. 


Companies such as the Citizen’s Advice Bureau are really helpful and can even contact lenders for you if you’re struggling. 


Can you trust new lenders?


If you really do need a payday loan, it’s always advisable that you use a company that’s well established. However, you will likely come across a lot of new payday lenders. While these new rules will help next year, for now you have to be careful when choosing a lender. 


Things to look at when choosing a lender include:


•Borrowing restrictions


•Amount you can borrow


•Interest rates


•Cost of loan


Each lender will have their own set of borrowing restrictions. The very basic ones include being 18, in full time employment and having a bank account. However, some lenders will require that you earn a certain amount each month. It’s actually the companies who have more restrictions that are the most trustworthy companies. It shows they are being responsible about who they lend the money to. 


The typical amount of money you can borrow from a payday lender for the first time is £50-500. Some lenders will go above this and those are the ones you need to watch out for. Most people wouldn’t be able to pay back £1000 out of their next pay check. 


New payday lenders can be trusted provided they have restrictions and they are upfront about any fees associated with the loan. Never trust a lender which seems to offer rates that are too good to be true. Often when something seems too good to be true, it is. The new rules coming into play next April will definitely make a difference and prevent thousands of people getting into debt.


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