Short Term Loans and the options now present

Warning: Late repayment can cause you serious money problems

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Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

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Author: Internal Marketing Department

 

 

In the world of short term lending there are now many options that are available. This means for consumers it more important than ever to understand the facts and products which are on offer. This is particularly the case thanks to the massive amount of change the market as a whole has undergone in the last few years. These changes are reflective of the industry’s adjustment in attitude and approach to now aim to ensure the market as a whole is operating in a more responsible manner. Today we will aim to understand these changes and what they mean exactly to the consumers who continue to use them.

In the past the concept of a short term loan was not a resource that the mass market was familiar with. Although thanks to their ease of application and increasing number of lenders available, the number of borrowers finding them was increasing year on year. As time passed it became more evident that this was changing and in fact a short term loan was becoming part of many consumers monthly funding. The appeal of this type of loan stems from the void they were able to fill in years gone by. Often a customer looking to only borrow a small amount of money would be faced with limited resources, such as their bank or Credit Card Company. It was always true to say that many consumers were struggling with the unexpected bills and in fact the money they wanted to borrow needed to be available quickly. This is why when these loans became more visible to the public, suddenly the number of consumers using them grew massively.

The problem with this type of lending became apparent as time went by and highlighted to many that in actual fact many changes to the operations of the previous lenders needed to take place. At the time the lenders were very clear that if a customer wished to borrow, they would expect the full amount, including interest, to be repaid on the due date of the loan. There was no attempt to hide or mask this fact, in fact it was clearly displayed for the customer to see and understand. Unfortunately though this did not stop these large lump sum repayments being overlooked by the borrower as far too expensive and unrealistic to be repaid in a lump sum. Many consumers were discovered to have been repeatedly turning to extension payments instead, which as presented by the lender as an alternative. This allowed the customer to simply repay the interest that month and delay the full repayment of the loan to a later date. Although this seemed like a reasonable alternative, many consumers then found themselves in a position where they were trapped in a cycle of debt unable to ever afford to repay the full and original balance of the loan which was still, after months in some cases, due to the lender to clear the account.

The backlash of this was evident for all to see, governing bodies and the media alike highlighted that lenders were effectively allowing consumers to extend time and time again without recognising that this was not in the their best interest or helping them to reduce the amount they owe. As a result of this a lot in the market changed and namely the product. It was clear from years of review that in fact the consumers looking to borrow a small amount, needed to have the option to repay it over a more reasonable period of time and therefore instalment loans were introduced. These are immediately a large step away from the loans of the past and highlights the short term loans lenders desire to assist their market more effectively and fairly. 

Instalment loans give flexibility back to the customer and therefore gives them choice so they do not feel they have to repay a lump sum if it is not the best option for their budget. Lenders are also now looking to understand the customer affordability better too, this means asking for all their monthly expenditure and income and making an assessment based on this. It is now much easier for a lender to compare the affordability of an applicant to the credit reference information available and therefore draw a far more accurate and researched profile of the customers ability to pay. This really helps to ensure the market as a whole is able to grow in strength and continue to be a useful resource to their customers.  

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

 

By Gemma Lane