Payday Loans – Caveat Emptor

Payday Loans

The Ups and Downs of Payday Loans

Payday loan is something  you opt for when you need instant cash and other options are not available. It is usually a short-term loan that you take and since it is available at such short notice, it also charges high rates of interest. Emergencies can occur any time in your life and if you need money instantly, Payday loans are thought to be the one of the best solution. However, just like these loans are very convenient and easy to obtain, they also have their down side. You must weigh your options very carefully before you decide to get apply for a payday loan. Some Payday loan have been said to charge interest rates of up to 572%.

Payday loans are available on a short-term basis (usually 2 weeks) to help you meet a financial emergency until your next payday. You have to repay the loan once you receive your paycheck. The interest rates on these loans are rather high and the main reason for this is that they are available on such short notice. If you need cash fast and are not able to get credit at the bank, you may opt for these loans.

How much can you borrow on Payday loans? This depends on the net income that you have after tax deductions. The best part about these loans is that there is no check done on your credit history. While there might be other terms and conditions that govern Payday loans that vary from one company to another, the basic requirement is that you must be 18 years of age or over and employed with the same company for the last 6 months at least. You also need to have a bank account that is at least 6 months old.

The rate of interest charged by payday lenders is quite high. It will be anything between 15 and 30% of the amount you borrow. It is then made payable on top of the amount that you have borrowed. The loan companies have their justification for such high rate of interests. The first reason is that these loans are made available to anyone irrespective of the credit history he/she has provided he/she fulfils the basic eligibility criteria. Banks have a very strict procedure of approving loans, which the Payday loan companies don’t. Paperwork is almost minimal in Paypay loans. These are the few advantages that these loans provide to you and these are the main reasons why such high interest rates are charged.

There is a lot of controversies surrounding the Payday loan industry and how the loan is used by their clients. Government-funded consumer champion, Consumer Focus claimed that “borrowers are becoming dependent on high-cost credit they cannot afford to repay,  People are turning to supposedly “last resort” payday loan companies again and again, rather than using them only in emergencies. The extremely high interest rates charged by the company tends to push people who use them regularly into deeper debt than they were before. UK is not the only country where Payday loan is giving the authorities and consumer organisations concerns. In USA,  the Mississippi Senate recently gave final passage to a bill designed to reduce fees on payday loans.

Payday Loans FAQ

What is a payday loan?

It is short-term loan, advanced to the borrower typically till his or her next payday. They are often paid with a post-dated cheque or by instruction given to the lender to make automatic withdrawal from the borrowers account.

What sort of people use payday loans?

Payday loan users tend to be young and single with below-average incomes, it is estimated that majority of Payday loan users earn below £25,000 per annum however this author came across two instances of Payday loan users with income of of over £40,000.  It is also estimated that more than half of borrowers are under 35.

How often do people use Payday loans?

It is argued that  people can get “addicted” to using Payday loan, with an average user returning to the lender about 4 times a year or every 3 months.

So how can people get into debt trouble?

Not repaying the loan  at your next payday can lead to problems. Rolling the loan over to your next payday significantly increases the interest. Other do pay the loan but take out another loan almost immediately.

How can I get help if I get into debt trouble?

Your local citizen advice bureau should be your first port of call, they will be able to advise you on the best way too move forward.

Financial Inclusion Scheme – Funding to continue for another year

The Financial Inclusion Scheme, a debt advise services funded by the government has been granted stay of execution for at least 1 year. The business secretary Vince Cable has just announced that he has found £27 million pounds to the hundreds of debt advisers that run the scheme in work for the next one year.

Earlier this year, the government announced that it will not longer fund the scheme so the scheme was set to close with hundreds of debt advisers made redundant. Many consumer organisation and some MPs has been calling on the government to continue funding the FIS. They are said to provide vital help and advise to families struggling with debt ranging from over stretched flexible friend, loan sharks, catalogue and other small debts.

With the new cash injection from the government, the scheme is set to continue for another year.

Credit and debit card surcharges Which? to the rescue?

Credit & Debit Card Surcharges

A book once described how a tribe in Brazil trap monkeys. Well, its a trap and its not a trap because the trap does not actually contain a devise that physically restrain the monkey, the monkey is kept trapped by its own greed.
The trap is just a bottle with a nuts inside it, the neck of the bottle is wide enough to allow the monkeys hand through, but once the monkey grab hold of the nuts, the hand becomes a fist, which is too big to come out of the bottle, the monkey being too greedy (or not cleave enough) does not let go of the nuts and escape but stays there trying to pull its clenched fist out.

The above description is not unlike how some consumers behave when responding adverts that offer them cheap flights to some wonderful destination for £2. By the time hidden charges and cost of processing payment by credit card is added to the £2 the flight end up costing the same of even more expensive than the cost of the same flight will full service airline that do not apply hidden charges to their fares.

Low cost airline are not the only industry accused of applying unfair credit and debit card surcharges to their products and services, many other commercial organisations are accused as well. For consumers who feel their are being unfairly charged, a champion has emerged to take on the unfair charges on your behalf, its Which? the consumer organisation.

Which? described some of the charges levied on customers who pay online by debit or credit card for flights and other services as a “murky practice”. Which? is now filling a super-complaint to the OFT (office of fair trading). Consumer organisation have the statutory power to make super-complaints on behalf of consumer when. OFT is expected to investigate and respond to Which? super-complaint withing 90 days. If the OFT agrees with Which? that the organisation accused in the super-complaint have a case to answer, OFT will launch a full investigation which can result in fines or lays asking the concerned companies to make changes to what they charge customers for processing credit and debit cards.

Project Merlin to conjures £190 Billion in lending to business in 2011

The government and bank conjure £190 for businesses under project Merlin

On the day that it was revealed that half of the donation to the conservative party comes from the City, the chancellor of the exchequer George Osborn announce a deal the government has just reached with the banking industry. The deal called project Merlin see the bank agree to lend between £190 – £200 billion to businesses in 2011. One of the biggest criticisms of the banks apart from the excessive bonus key bankers are said to be making is the fact that bank are not lending money as much as they used to, especially to small businesses.

Of the 190 billion pounds agreed under project Merlin, banks are to lend at least £76 billion to small businesses. Measures to address the public concern over bank bonuses is also tied in, banks will reveal earning of their top earners and some bonuses will be curbed. The bank of England will monitor the lending targets set to ensure banks are meeting the targets.

Yesterday, the chancellor announced a levy of 800 which is strongly linked to bank bonuses but not is not labeled as such. The chancellor ruled out a direct bank bonuses levy which his shadow Ed Balls and the labour party call for. Part of the levy placed on bank is to pacify public anger at the banks. The chancellor acknowledge that the levy will not quite satisfy the public but it will go someway to reassured them that the government is doing something about the banks.

Equity Release Schemes – Freeing the cash locked in your property

Equity Release – A tax efficient way to pass on your legacy?

Equity Release Scheme
Equity is the value of your home less any outstanding mortgage or other debt secured on it. In most cases, section of the population targeted by equity release industry tends to be home owners who are retired or nearing retirement (Usually people aged over 50).  Equity release process is said to help home owners free the equity built up on their home by settling any outstanding mortgages or other loans and  providing access to the cash value of the equity.

Equity release is a growing industry, more so in the adverse economic climate that followed the credit crunch but the industry does not seem to enjoy the recognition other sector of the financial industry enjoys, perhaps because of the fact that it seem to base a significant part of its projection on the death of people releasing equity on their home.

There are different types of equity release products on the market offering different ways of releleasing equity on your home whilst continuing to live in your home. Some people argue that equity release is a tax avoidance but other argue that it is just an efficient way ot enjoying some of your hard earned cash while you are still alive or a tax efficient way of providing for your benefactors before you die.

Properties in UK had experienced a significant increase in value in recent years,  taking a lot more people into the inheritance tax bracket than ever before. Any estate worth £285,000 or more falls withing the inheritance tax bracket. Inheritance worth more than £285,000 attracts a tax of 40%, this will see an estate worth half a million paying £80,000 in inheritance tax. Critics of inheritance tax argue that its a soft target for the excheuqures when looking for ways of raising more revenue. Another arguement of the critics is that inheritance tax is not fair becuse the person who leave the estate behind has already paid taxes on it.

Equity release is said to be a tax efficient way of passing on your asset to your beneficiary in a much more efficient way than the usual way of passing on asset in a will after death.

More people becoming insolvent in England & Wales

More people become insolvent in England Wales in 2010

Figures released by the government recently show that a record number of people were declared insolvent in England and Wales last year. There were 135,089 people declared insolvent in 2010 according to Insolvency Service. This mean the figure for 2010 is up 0.7% on 2009 figures and the highest level of insolvency since 1960. Though the figure is gloomy for personal insolvencies, for companies going out of business, the news was better as there was 23% less company going out of business in 2010 compared with 2009.

Debt, Debt and More Debt

The record number of personal insolvencies for the whole of 2010, which was double the number in 2005, came despite a drop in the final quarter of the year when 30,729 individuals were declared insolvent.

Experts suggested this fall at the end of the year was the result of fewer people being able to attend court proceedings owing to the weather, a more sympathetic attitude from lenders, and people putting off insolvency until the new year.

Insolvencies throughout 2010 were driven by a 6.5% rise in Individual Voluntary Arrangements (IVAs) – which allow an official deal to be struck between the debtor and creditors – to 50,716.

There were also 25,179 Debt Relief Orders – a relatively new style of insolvency for relatively low debts.

However, the number of people taking the more traditional bankruptcy route fell by 20.7% compared with 2009 to 59,194.

Compared with the last recession in the early 1990s, the latest figures show a very different picture.

The number of individual insolvencies has shot up in the past decade, and now far outstrip the numbers seen in 1992 and 1993 of about 37,000 each year, although it is easier now to be declared bankrupt.

Experts said this was because the amount of credit built up by individuals – especially on credit cards – mushroomed in the last ten years. IVAs were also in their infancy in 1992-93.