The payday loan industry is growing, and more clients are finding themselves in need of such services in the wake of the economic slowdown due to COVID-19. This trend looks set to continue in 2021. Many lenders are beefing up affordability checking processes to ensure that borrowers do not become overburdened by debt.
High levels of bad debt and recent findings by the ombudsman that indicated a need for more checks and balances have triggered this move. Here is what you need to know about getting a payday loan in 2021:
Understand terms and conditions
Payday loans, including same-day payday loans, are short-term financial transactions. You borrow a small amount to deal with a financial emergency on the premise that the loan amount, together with interest, is repaid once you receive your salary or benefits. Most lenders also offer borrowers extended repayment periods, but these seldom exceed three months. They also apply only when you borrow over an amount the lender specifies.
Payday lenders are obligated to ensure that they supply you with the terms and conditions of your agreement. However, it is incumbent on you to read and understand them. If you are not sure about something, seek clarification before committing.
While the interest rates charged on payday loans are high compared with personal and long-term loans, they have some benefits. They are relatively easy to obtain and come in handy when you need a helping hand to get to the end of the month. Payday loans are over and done with after a short time, leaving you free to seek other credit products should you want them.
More rigorous screening
Rulings by the ombudsman have put some payday lenders out of business because of compensation orders from past unfair practices. Lenders were found to have offered borrowers loans knowing that there was a distinct chance they would be unable to pay them. This is unethical as it lines the lender’s pocket with the additional interest charged on outstanding balances.
To ensure that your application meets with a lender’s requirements, prove that the repayment is well within your budget and that defaulting is an improbable prospect. With lenders being more cautious, focus on reassuring them that lending you money is minimally risky.
A healthy credit score
Payday lenders should check your credit score before extending a loan to you. While you might still get a loan with a less than ideal credit rating, there is a significant chance that you will be charged a higher interest rate. Your past financial behaviour is a reliable prediction of how you will handle debt in the future.
To maintain an excellent credit score, keep your debt levels down to what is essential. You should not be going into debt on a whim to buy something that you could realistically save for. Pay monthly instalments in full and on time. A missed payment incurs additional interest while simultaneously deducting credit score points from your total.
Stay off the debt hamster wheel
If you find yourself borrowing money to pay off debts, get out of this debt cycle before it becomes well-nigh impossible. Instead of offering you more loans that will make your situation worse, payday lenders should protect you by referring you for debt counselling. While times are tough, and it is easy to succumb to the temptation of taking out a loan to make your financial problems ‘disappear’, all you are doing is prolonging them.
Consider checking your credit score at least once every six months to get an overall picture of how potential lenders would view your application for a loan. It also helps you identify fraudulent transactions that you did not authorise. If you feel your situation is getting out of control, get help. Several organisations run free debt counselling services to improve clients’ financial literacy levels and get them onto an even keel.
As most payday loan transactions are now conducted online, you are no longer limited by geography. In the past, you could only make use of lenders that operated in your area. This no longer applies as you can take a loan from a company anywhere within the UK. You can now take advantage of companies offering better deals on payday loans.
Just as your financial situation is unique, so are the services offered by some companies. For example, some payday lenders require more information in an application than others. You might be asked what the money is for, a budget breakdown to prove that you can repay a loan or a letter of employment in addition to salary advice slips.
Certain payday lenders are a little more flexible when it comes to a less than stellar credit score than others. Some offer lower interest rates than others. With so many potential lenders to choose from, take the time to weigh your options before deciding.