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.

Debt Consolidation – Put all your debts in one basket

Debt Consolidation UKThe global meltdown that started with the subprime crisis in the US had its cascading effect on many other economies since we are in an era of connectivity and the world is a global village. The financial problems of one country cannot be wished away since there is bound to be some fall out in other countries and that is what the world experienced after the collapse of some of the financial institutions in the US.

UK too had to bear the brunt of this not only due to the general financial crisis linking its own banks and lending institutions but also because of poor management of finance and indiscriminate extension of credit to people who in the first place did not qualify for them. The net result is that there are many in the UK who have run up huge debt and are now wondering how to get out of this trap they have led themselves into. Many are seeking counseling from finance experts and are trying to exercise options suggested by them such as debt consolidation as nobody wants to declare themselves bankrupt and face a whole different set of problems down the line.

However, the positive thing for UK residents is the existence of an instrument called debt relief order whereby people with no tangible assets and very little income can buy time for up to a year to either pay up whatever he or she can or have the debt written off after a year. During this period, the creditor is not allowed to take any action against the defaulter. This scheme does have a limit and other conditions that need to be satisfied by the beneficiary, but at least there is a mechanism in place.

The UK is also different in the sense that the government makes available many social health programmes and also takes it upon itself to solve problems of debt or insolvency of its citizens.

Another option is that of debt consolidation.

Under debt consolidation, the borrower takes a loan at a much lower interest rate and makes use of it to take care of other debt. This is an effective way to handle or settle credit card as well as other overdrafts. This instrument can also be used for personal requirements such as purchasing a vehicle, renovating the house or taking a vacation.

This debt consolidation loan can be of two types – the secured and the unsecured. In the former case, you are required to provide some security which can be in the form of the house, car or some other real estate papers and so on. The tenure of the loan you can take under this can range from between five to thirty years and you can draw between £3000 to £50,000. The only aspect to take care is that of repossession of the security by the lender in case of any default.

In the latter case or the unsecured debt consolidation instance, the loan tenure is a short one of between five to ten years and the amount that can be drawn is between £3000 to £25,000. The interest rate is higher in case of the unsecured one, since the lender is exposed to a higher risk.

Identity Theft – Don’t be a victim

Identity Theft – Don’t be a victim

identity theftThe problem of identity theft in the UK is a serious one and many individuals as well as businesses have had to face this scourge and are always apprehensive about how to make sure they avoid this specter of finding out suddenly one day that their identity has been impersonated due to their carelessness or due to the carelessness of some retail store, bank or government body.

The most prevalent kind of identity theft is the financial one where criminals take on the identity of an individual in order to get financial gains through goods, services or pure cash. In the business world, these criminals clone a particular business unit or organization to gain financially.

Other kinds of identity theft include simple impersonation by a criminal when he or she is apprehended. Some resort to this in order to gain benefits of medical treatment in certain countries that require the individual to have health insurance cover. Some cases of total identity cloning have also come up but fortunately they are quite rare.

Some recent instances in the UK include the theft of some 25 million records from the HM Revenue and Customs, the loss of a laptop that contained about 11 million records pertaining to the Nationwide Building Society, more than 3 million personal details of learner drivers that were again put to great risk when the computer of the third party agency working for Driver and Vehicle licencing organisation went missing and credit card details of customers stolen from the retail store TK Maxx.

So what is the importance of personal identity and why do criminals find this to be a lucrative opportunity to make money?

Well, since we still do not have a single document in the UK that can be used all across the country to prove one’s identity, many organisations are compelled to use personal details like the name, address, place and date of birth and so on through a whole host of papers such as the passport, driving licence, marriage certificate, bank and utility statements etc. These documents tell authorities who you are and unlike DNA, fingerprints which cannot be duplicated are used by criminals to access information and become that person in order to gain financial benefits or to perpetrate frauds. You therefore have somebody opening a bank account or accessing a loan using your identity or somebody getting credit cards making use of your personal details and running up huge spends on it at your expense. Other more serious cases of illegal immigration, money laundering, acts of terrorism have also occurred due to identity theft taking place.

Though organisations are putting in place various check mechanisms to prevent such frauds from happening, more needs to be done to eliminate this problem totally.

On a personal level, if you suspect your identity has been compromised, you should do the following immediately:

  • Get the latest credit history report so that you know whether any attempt has been made to acquire loans using your personal information. It also gives your updated outstanding debt as accumulated by you.
  • Contact the banks where you hold accounts and the building society to verify whether any financial impropriety has taken place.
  • Contact all utility agencies such as electricity, water, cable television, internet etc and check with them about any attempts having been made by anybody to change current arrangements.
  • Get your computer thoroughly checked by a professional for any leakage or spyware that may have been introduced to get access to any of your records.

In terms of what you can do to ensure that your identity is not stolen or compromised, you need to pay attention to the following:

  • Tear up, shred or burn receipts which display your card number
  • Make sure you do not use the same password for all accounts
  • Do not use your mother’s maiden name or your birth place as security passwords
  • Beware of phishing mails and do not respond to them.

Most importantly, if you find out there has been an identity theft,  it is essential to remain calm and keep copies of all documentation you have exchanged with the various government and other authorities for future reference if required in order to fight any legal battle.