Historically, people would often associate short-term payday loans with rogue traders who operate without any regulations or regard for their customers, but the modern reality is very different.
The payday loans industry is a heavily regulated industry that is driven by transparency and peace of mind; payday loan providers must adhere to stringent regulations and they must provide all the necessary information to clients before lending them money and treat them fairly.
Of course, every industry has its myths and misconceptions. In the payday loans industry, myths often arise from customers failing to read a provider’s terms and conditions in regards to repayment or being irresponsible with borrowing – either way, these myths lack a factual basis.
In this blog, we’ll dispel the top four payday loan myths and misconceptions, providing you with the truth about the payday loans industry.
Payday loan myth #1: providers are trying to profit from you and trap you in a ‘cycle of debt’
When people refer to loans, they often talk about a “cycle of debt”. This cycle of debt refers to the continuous borrowing of money, leading to increased debt, costs and eventual default. In some instances, people take out loans to pay off existing loans or to just keep up with minimum required payments. However, a primary contributor of this cycle of debt is when a person is irresponsible with their borrowing. Most – if not all – loan providers advise against borrowing more money to pay off debts and always advocate borrowing within your means.
Believe it or not, payday loan providers are not trying to trap you in an eternal cycle of debt or ‘exploit’ you. Short-term loans are designed to help you alleviate the financial pressures you face by offering short-term financial aid. These loans should only be used in emergencies or difficult situations – and responsible providers always state this.
In reality, payday loans (also known as short-term loans) are one of many good solutions for those looking for emergency cash. Provided you meet your repayment obligations – i.e. paying the loan off in time – then there should be no problems. Payday loans costs escalate if you miss a payment or default, so think carefully before taking out a payday loan.
Payday loan myth #2: all payday loan providers have hidden costs
The reason why people believe there are “hidden” costs is because most do not diligently go through the contract or terms and conditions when taking out the loans. The industry, as mentioned previously, is highly regulated – and as such, payday loan providers must disclose all fees in a clear and concise manner before an agreement is signed. In the UK, the law requires payday loan lenders to disclose interest rates, application fees and other applicable fees including additional charges and fees for non-repayment..
Also, fees and new conditions cannot be added after a loan has been taken. Yes, payday loans have higher interest rates compared to traditional loans – but payday loans are unsecured loans that do not require any other form of collateral. Payday loan providers are not rogue traders – every application undergoes a comprehensive checking process and there are price caps in place to ensure no exploitation. For example, customers will never repay double what has been borrowed.
Payday loan myth #3: short-term loans can negatively affect your credit rating
If you are sensible and prompt with your monthly repayments and return all of the money you have borrowed in a short time, it could have a positive impact on your credit score. When lenders check your credit report prior to giving you a loan, they are trying to ascertain whether or not you are a responsible borrower. If you can demonstrate previous short-term loans where you have paid those loans back within – or before – the agreed date in full, you credit rating will be improved and lenders will look at you favourably. It’s only when you fail to pay these loans that your credit rating is affected.
However, some industry professionals note that the presence of a short-term loan, or High-Cost Short-Term Credit (HCSTC,) on your credit file may impact some of those longer credit options, such as a mortgage.
Payday loan myth #4: loans are quick, but customer service can be very poor
Loans are quick, yes – but that doesn’t change the fact that loan providers conduct comprehensive and stringent application checks to ensure applicants meet the minimum loan criteria. Loan providers analyse applicant information and credit history to assess the applicant’s ability to pay back the loan. Loans are only approved where the applicant can demonstrate ability to meet the loan repayment, following checks of monthly expenses and salary – a good or bad credit score, alone, does not guarantee whether you will be accepted or rejected for a loan.
With regards to customer service, it’s important to appreciate the fact that generally, prices and interest rates are the same across the industry. So when it comes to choosing a loan provider, why not choose a provider with a dedicated customer service team and UK-based call centre?
There’s a widespread belief that when trying to get in touch with a loan provider’s customer service department the caller will be put through to someone based in an overseas location. This is not true. At Uncle Buck, for example, we have a dedicated, UK-based customer service team to assist you and help you manage your loan.
Ultimately, these payday loan myths stem from irresponsible borrowing or failure to read and consider the loan provider’s terms and conditions. Loan providers across the UK are reputable, trustworthy and subject to extreme regulation. All firms offering short-term payday loans must be authorised by the Financial Conduct Authority (FCA) and their permission to lend can be checked on the FCA register.
At Uncle Buck, however, we pride ourselves on our ability to go above and beyond for our customers to deliver exceptional customer service. We take our responsibilities seriously and give full information to our applicants to enable them to make informed borrowing decisions. In order to maintain our high levels of customer service, we have Quality Assurance programmes in place and conduct regular training.
If you are thinking about applying for a short-term payday loan, but are looking to find out more about what to consider beforehand, why not download our eBook?