Security an Important Feature for those Taking Payday Loans

Feb 26, 2013, 12:50 ET from Latest Money News

LONDON, February 26, 2013 /PRNewswire/ --

Money website  Latest Money News  looks at the changing face of borrowing in the UK and the growth of payday loan lenders.

There has been a lot in the press over the last 12 months around payday loans and the growth of these emergency loan lenders. Latest Money News research reveals that there are in fact a number of misconceptions around the loans.

While the payday loan industry is not regulated by the FSA, it does not mean that there are no rules. As with other lenders, many payday lenders adhere to guidelines set out by the Office of Fair Trading (OFT), and as a result they are required by law to publish their annual percentage rate (APR).

This may be viewed as a more secure method of borrowing; as for example, banks are not obliged to show an APR for penalties or increased interest as a result of consumers going into their unauthorised overdrafts.

As with any form of borrowing it's important to examine the conduct of the payday company you are considering using, and to look for those payday lenders that are members of the Consumer Credit Trade Association (CCTA) or the Consumer Finance Association (CFA), and looking at the CCTA code of practise when taking out a payday loan.

Recent research from payday loan broker Payday Bank recently revealed that security of lending is one of the most important features of a payday loan for more than half (54%) of payday borrowers.

In a series of recent articles around payday loans, Latest Money News highlights that a common concern relating to payday loans relates to high interest rates. These are naturally worrying. However, what many consumers may be unaware of is the fact that banks can often charge higher rates of interest on unauthorised overdrafts.

As an example a recent a investigation by Money Mail showed that while a typical payday lender charged £25 for a borrowing £200 over a period of 10 days (an APR of 7,384%) this figure reached as high as £87 with high street banks such as Lloyds TSB (53,099, 884%)[.]

Payday loans - Typical borrowing situations

Latest Money News stresses the point that payday loans are designed for short-term borrowing, and are meant to be repaid quickly, and as a result are not suitable if you are facing regular financial difficulties or are looking for longer-term borrowing.

As an example, more than a third (37%) of payday borrowers used payday loans for bills during difficult times, while a further 28% used payday loans to specifically tide them over in an emergency. The vast majority of lenders take out less than a handful of loans in a year.

As with any form of borrowing it is crucial that you are ensure that you are able to meet repayments, before you consider taking out a loan.

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