Have Payday Loans Improved over the Years? – Chapter 8: How to Ensure a Positive Payday Loan Experience
Was your payday loan experience positive? Here at payday loan direct lender Payday Loans Net, we are always trying to keep the payday loan experience positive for our customers as we understand they are coming to us in their times of need. Read on to find out how to make your payday loan experience the most positive one.
This chapter takes you through the entire experience of applying for a payday loan step-by-step with information about:
- Whether you really need to borrow money
- Using a short-term loan for priority debts
- Alternatives to a payday loan
- Researching the market
- The payday loan application procedure – affordability checks; the terms & conditions of your loan
- The use of CPAs
- What to do if you’re turned down for a payday loan
- Rolling over repayments & payday loan fees/charges
- What to do if you can’t pay your loan repayments – speak to your loan provider; rolling over your loan; agreeing on an affordable repayment plan; speak to a free debt advisory service
- Making a complaint to the FCA about a payday loan company
Bearing in mind the research carried out by Citizens Advice. There are many things that borrowers can do to ensure that taking out a payday UK loan is a positive payday loan experience. In this chapter, we take you through the entire process of applying for a short-term loan so that no problems arise. From the application procedure to what to do if you have any difficulties in making a payment. We also tell you what to do if you feel you have grounds for a complaint. We explain everything you need to know.
Need a Payday Loan?
Don’t be too hasty. Many payday loans can be paid into your account in a matter of minutes. Therefore, taking the time to stop and think over your decision won’t make much of a difference to you. However much you need the money. Take a few minutes to think about whether you really need to borrow the money. Whatever the loan is intended for, are there any alternatives? Perhaps you could wait a few months until you can save up or maybe you could manage without it? If the money is for the purchase of a household appliance, could you save money by buying one second-hand until you’re in a better financial position?
Borrowing Money for Priority Debts
Priority debts are payments that have to be made to cover your monthly living expenses. These include things such as the rent, utility bills and groceries. Taking advantage of a short-term loan to pay for an unplanned emergency such as replacing the central heating boiler is one thing. However, if you need a loan to cover your essential expenditure, then this hints at more serious underlying problems. Problems with your income and/or your budgeting.
If you find yourself in this situation, you could look at ways of increasing your income. For example, starting a second part-time job or taking on extra hours at work. Alternatively, you could consider ways of improving your budgeting skills. Many online sites like www.moneyadviceservice.org.uk have budgeting tools which are very easy to use. Or you could contact a debt advisory service like Citizens Advice. A payday loan experience may provide you with temporary relief from your worries. However, it isn’t going to tackle the source of the problem.
Alternatives to Short Term Loans
Once you’ve come to the conclusion that you really need to borrow the money you should think; are there any other ways to raise the funds apart from taking out a short-term loan? Depending on your circumstances, you could use your existing credit facilities to finance your purchase. Think about whether it would be possible to use your credit card; the interest rate will be much cheaper than a payday loan. Or perhaps you could arrange an overdraft facility with your bank. If neither option is open to you, there are other ways of finding the money.
Credit unions are becoming increasingly popular nowadays although you would have to become a member before being eligible for one of their loans. Alternatively, would it be possible for you to borrow the money from family and friends? This solution isn’t without its dangers. However, it can be a lifesaver when you have unexpected expenses which you haven’t budgeted for. Alternatively, is there anything you could sell to make up for a shortfall in your income? Car boot sales and online auction sites are just two of the many ways you could sell items you no longer need.
Low Income Benefits
If you’re on a low income and/or are unemployed, are you quite sure that you have applied for all the governmental help you’re entitled to? Every year millions of pounds of allowances and benefits go unclaimed in the UK. This is quite simply because people are unaware of what they’re eligible for. Local councils can also be a source of help. From supplying second-hand electrical appliances for those on a low income to helping with the cost of school uniforms.
Now you’ve concluded that you really need to borrow the money and that there are no other alternatives open to you. It’s time to look at the application procedure for a payday loan in more detail.
Researching Loan Companies
Would you walk into the first electrical shop you found and buy the first TV you liked the look of? No, of course you wouldn’t. You’d take your time and research the market to see what’s available and what is cheaper. A payday loan is a financial product like any other. Therefore, you should check out a number of payday loan companies to ensure a poistive payday loan experience. See what they offer in terms of repayment fees and customer service. In their research, the CMA (Competition & Markets Authority) found that less than half of payday loan borrowers took the time to research the market as explained in Ch.7. The payday lenders you choose can play one of the most important roles in what your payday loan experience will be like.
One of the easiest ways to check what’s available is to use an online price comparison site. Remember that some sites might not include all the lenders in the market. Therefore you should use a couple of different sites. This will help you have an idea of what’s out there. If you’re referred via a link to the website of the payday loan provider, you can learn a lot about the company by a look at their website.
How to Apply for a Loan
It goes without saying that the lender must be authorized by the FCA. (If it isn’t, alarm bells should start ringing in your head) but also check if it abides by a Good Practice Customer Charter. Many of the guidelines set out by the FCA are just that – guidelines. This means that lenders are under no legal obligation to follow them. However, a company which follows this charter is more likely to be fair and above board in all their dealings with you. A company which explains their products in simple easy-to-understand English and has blogs with budgeting advice is even better still. This is because it shows it has a commitment to putting the customer first.
Once you have decided on the payday loan provider you prefer, it’s time to start your application procedure. The first two pieces of information you have to supply is first, the size of the loan you’d like. Secondly, your repayment period.
When entering how much you’d like to borrow, try to be as accurate as possible. The temptation may be to round up the figure but remember: the more you borrow, the more it’ll cost you to repay. Although payday loans started as a short-term loan, many providers are now offering medium-term loans paid in instalments over 3-6 months. This may be ideal if you feel you might need longer to pay off the loan but bear in mind that the interest will also be more.
A reputable payday loan provider will assess your creditworthiness as explained in Ch.2. This means they will also need to ask you information about your income, expenses as well as contact a credit reference agency. You will find payday loan lenders online that use the fact that they don’t carry out a credit check as a selling point. You should steer clear of these lenders at all costs. Quite frankly, there are affordability checks for a reason – to ensure a great payday loan experience. Companies which lend you money are doing you no favours if they don’t ensure that you can afford to make the repayments. In their research, Citizens Advice found that borrowers who didn’t go through a rigorous assessment of their ability to pay the loan were nearly twice as likely to struggle financially and default on their repayments.
When completing the information about your circumstances and income/expenses for the affordability check, be as accurate as possible. Don’t mislead the lender to get a positive reply to your loan application. This could backfire badly and increase your chances of getting into financial difficulties later.
Terms & Conditions of your Loan
Once your payday loan is approved, you should make sure that you understand its terms and conditions. This doesn’t only mean knowing exactly how much the loan will cost you (your single or monthly instalments). It also means how much you may end up paying if you default on one or more repayments. Nobody ever takes out a loan with the intention of defaulting, but life sometimes throws surprises at us. In the same way that an unexpected expense can throw out all of our careful financial planning, so we find ourselves turning to a payday loan, sometimes circumstances beyond our control mean that we don’t meet our financial commitments as we’d like.
Don’t just tick ‘I agree’ without understanding the terms of the loan. A reputable lender will be more than happy to explain anything you don’t understand and will welcome any queries you might have.
The Use of CPAs
Your payday loan company may wish to set up a CPA. This Continuous Payment Authority is easy to arrange; all you have to do is give the payday loans direct lender your 16-digit PAN (Permanent Account Number) found on the front of credit and debit cards. This will allow your repayments to be made automatically without you worrying about forgetting to make your payments and accidentally defaulting.
FCA regulations have put a stop to the abuses which used to occur among unscrupulous payday loan lenders before 2014. Loan providers are no longer able to try more than twice to unsuccessfully take out funds from your account and aren’t allowed to take part payment. You also have the right to cancel a CPA at any time although if you’re making alternative arrangements to repay the loan, it is common courtesy to let the lender know beforehand. This can also enhance your payday loan experience.
If You’re Turned down for a Payday Loan
98% of consumers thought that taking out a payday loan was easy/very easy in research carried out in 2016 by Citizens Advice. However, the fact that many disreputable lenders left the market in 2014 in light of new regulations means that approval rates for such loans have been steadily falling. According to the CFA (Consumer Finance Association), the number of payday loan application which pass has dropped by 42%.
If you are turned down for any financial product as explained in Ch.5, it is the best indication that you’re dealing with a responsible lender only wanting to give you a positive payday loan experience. You should take this rejection as a wake-up call and use it as the ideal opportunity to reevaluate your budgeting skills and your attitude to money. What you shouldn’t do is to keep applying to other companies. Not only will you face the possibility of more rejections but it will also leave a footprint on your credit record. If you do find someone willing to lend you the money, how far would you be able to trust them as a responsible lender? If this is typical of their business ethics, how much worse would they treat you if you go onto struggle in repaying?
Rolling Over Repayments & Payday Loan Fees/Charges
One of the best examples of the improvements in the payday loan industry is the way that FCA regulations have been able to put a stop to the cycle of repeat borrowing and spiralling debt which used to be fodder for the media before 2014. You’ll probably remember the stories of how borrowers were at the mercy of unprincipled lenders. They would allow loans to be rolled over again and again so a simple loan of a couple of hundred pounds would soon reach thousands of pounds. Not only have most lenders like this left the market but there are now rules regarding rolling over loans and how much the payday loan company is allowed to charge.
A payday loan company can only roll over a short-term loan twice, and the company is supposed to offer an information sheet about free debt advice as soon as you defer payment for your loan or refinance. As far as the final cost of the loan is concerned, companies aren’t allowed to charge more than 0.8% per day of the sum you borrowed. Nor will you pay back more than twice the amount you borrowed. These regulations have been laid down by the FCA to protect consumers as explained in Ch.1. Citizens Advice found no evidence that this was a problem anymore.
Difficulties in Making your Loan Repayments
What should you do if you have difficulties in making your loan repayments? There are a number of solutions if you’re having problems making your loan repayments. Very often this is because of unexpected problems and not your fault. What should you do if you find you won’t be able to meet your financial commitments to the payday loan company?
Speak to your Loan Provider
The single most important piece of advice is to contact your lender the minute that you realise that you won’t be able to make a single repayment. Don’t wait until you’ve already missed the repayment deadline. Citizens Advice found that nearly half of the borrowers who had financial problems avoided speaking to the company. Of course, it’s perfectly understandable that you might feel embarrassed and stressed about this. You may also be under a great deal of psychological pressure about owing money. However, burying your head in the sand won’t make the problem go away. On the contrary, it will make it worse. Remember that until you have been in touch with your lender, you won’t be able to find a solution to your problem.
When speaking to the payday loan company, don’t make promises that you know you won’t be able to keep. Be as accurate as possible when you inform them about when you’ll be in a position to start your repayments. Don’t try to placate them by telling them what they want to hear. Explain the situation and when you expect money, this will help keep your payday loan experience in a positive light.
Rolling Over your Loan
One solution to a problem of a missed payment is to roll over the loan repayment until the following month. However, don’t forget that the interest charges will also go up. As a stop-gap measure, could you borrow from family/friends to avoid the extra charges?
Agreeing on an Affordable Repayment Plan
If you’re behind with more than one repayment, it’s important to put in place an affordable repayment plan as soon as possible. This is the time you’ll appreciate that you did your research and chose a reputable payday loan company which abides by a Good Practice Customer Charter. Although FCA suggests this as a guideline (rather than a legal obligation), a responsible lender should be prepared to meet you halfway. They should make the repayments reflect your financial situation and possibly waive or freeze your interest rates and charges. What they shouldn’t do is bombard you with phone calls, threaten you with legal action or offer you a new loan. (Examples of which were found by the debt charity, StepChange, in their 2016 research on the High-Cost Short-Term Credit market).
Speak to a Free Advisory Debt Service
If you haven’t gotten a referral to a debt advisory service by your payday lender (as they’re recommended to do so by FSA guidelines), then missing a loan repayment is the time to take advantage of their services. They’ll be able to go through your finances with you and put you on the right track, so you’ll be able to make a monthly budget and meet your financial commitments.
Making a Complaint to the FCA
Considering all we’ve said about the massive improvements in the payday loan industry, it might come as a shock to learn that complaints to the FCA have risen 22% since regulations for the sector. This doesn’t mean that companies have got worse but really reflects the fact that borrowers have a clearer idea of their rights and know who to address their grievances to. The majority of complaints are concerned with the lack of robust affordability checks; the refusal of loan companies to agree on an affordable repayment plan; the misuse of CPAs and the tactics which some companies use to chase up outstanding debts.
This complaints procedure is therefore in place if you are unhappy with your payday lender. Before you contact the Financial Ombudsman Service of the FCA, you need to be able to prove that you’ve done everything in your power to meet your loan provider halfway. You should keep copies of all correspondence – whether by mail or email and keep a record of all phone calls. When you speak to any representative of the company, keep notes of the date/time of the call, the name of the person you spoke to and a summary of the phone conversation. All of this will be needed when you present your case to the Ombudsman. You need to notify your lender of your intention to go to arbitration, and they have 8 weeks to respond to your letter before you can make the official complaint.
The FCA’s Financial Ombudsman Service has a number of powers at its disposal if they find that your payday loan provider didn’t lend money responsibly and/or treat you fairly. This includes the reduction of extra fees/charges and even wiping out the debt completely.
Conclusion – A Positive Payday Loan Experience
With 38% of (mainly irresponsible and/or unscrupulous) lenders having left the payday loan industry since the FCA took over its supervision in 2014, your payday loan experience will be a positive experience if you follow the guidelines given above. Of all the advice included in this guide, the single most important one is to choose your lender wisely. As a result, all the rest will fall naturally into place. A reputable lender will make sure that you can afford the repayments and if by chance, you find yourself in difficulties will do everything in its power to make sure you can find a solution together.
When you apply for same day loans, you might be pressed for time and need the money immediately. However, spending an hour to research the market and check the websites of payday loan companies won’t make much of a difference to how quickly you receive the money you need. It can make an enormous difference to your entire payday loan experience.