- New article looks at the realistic goings on of a payday loan lender
- Credit Unions and Guarantor Loans are alternatives to Payday lenders
- Transparency and regulation are important
- Assess the options open to you
A recent BBC article, investigating a day in the life of a payday loans company shows that the public perception of lenders is far more removed from the actual experience many customers have.
The article also highlights the lack of clarity over the alternatives to bank lending in the UK.
MP’s and the media have been quick to point the finger of blame at payday loans for irresponsibly lending money to customers who believe they have nowhere else to obtain funds.
This article explores some of the language used in the sector and the alternatives to payday loans.
What Is A Loan Shark?
Many uses of the words ‘loan shark’ have been leveled unfairly at payday loans, with the term being used to describe their high rates of interest and the possibility of landing in higher levels of debt.
However, the term ‘loan shark’ is traditionally used to describe someone who is willing to use underhand tactics to lend someone money in a completely unregulated manner, using illegal tactics such as intimidation and often selling whilst knowing that their customers are going to be unable to repay the loan.
Alternatives? What Alternatives?
The article consistently comes back to stating that there are few alternatives to payday lenders other than highlighting Credit Unions as an available option, but does not outline further solutions to the average payday borrower’s circumstances.
Credit Unions can potentially be the most affordable solution for anyone looking for short term finance, but their size, membership requirements and processes can often mean that they are an unrealistic option for many.
Guarantor Loans – An Alternative
Some people may not be aware that options already exist to withdraw a long-term loan that provides a solution to those unable to rely on a bank loan.
Guarantor loans can be a much more manageable solution to payday loans and are often more accessible than credit unions.
APR is slightly higher than the amount charged by credit unions, but most guarantor loans can be processed and paid in the same day, providing a real competitor to the payday lenders, who like to show that they can offer a fast service.
Anyone applying for a guarantor loan will need someone to support their application – this is the guarantor. Anyone who is willing to become a guarantor acts as a reference to confirm the applicant’s ability to repay the loan. Should the applicant be unable to meet a repayment, the guarantor will be responsible for making the payments in their place. It should be stressed this is a last resort used by most companies, as a solution is usually sought through the borrower first.
The search for a guarantor allows anyone considering this method to get an outside opinion on the appropriateness of a guarantor loan for them, as, if the guarantor is happy with the decision the customer can feel more confident with the backing of a friend or family member.
Look For Reviews
The true reflection of how a business operates is through listening to its current and previous customers, rather than politicians and the media using anecdotes and hypothetical arguments to discredit companies.
Reputable lenders will be completely open about sharing their customers’ experiences with you, as they know how valuable these testimonials are when persuading more potential customers to give them a try.
You can always investigate reviews for the company that are not shown on company websites to build up a bigger overall picture of their conduct to see if what the lender is stating is true.
You should also look to the most recent reviews; companies often update their processes and customer service and this may mean some reviews are not painting the current picture.
A Regulated Industry
The industry is currently regulated by the OFT, the Office of Fair Trading, – but from April 2014 the FCA (Financial Conduct Authority), will begin regulating consumer credit with aims to ensure that customers are fully aware of the benefits, the risks and the costs of the products and services on offer.
These rules cover consumers at each step of the process of getting a loan, from the advertising of a loan product, during the application process and after the application is complete.
Any complaints can also be taken to the Financial Ombudsman Service, who can independently review cases and award upon their findings.
All of these rules and regulations are designed to give the customer as much education and protection as possible; so they can be confident in the product or service that they are interested in.