Avoiding the spiral of repeat pay-day loans






Pay-day loans are in theory a good idea. They are a way of accessing money that people are due to be receiving but cannot physically get their hands on for several days. The problem for consumers of this type of service however, is that it can easily lead to a situation whereby the borrower becomes permanently short of the money they’ve taken in advance of receiving their pay cheque, which then forces them into a spiral of continuing debt. 

Responsible lenders like Wizzcash.com charge competitive, fair interest rates. For example, at present their interest is 0.72% per day; quite a lot lower than the maximum 0.8%; the newly capped figure recently introduced by the Financial Conduct Authority (FCA), the new body recently created by the government to oversee the HCSTL (High Cost Short Term Loan) industry.

Exorbitant rates gave pay-day loan industry a bad name 

When a pay-day loan has to be repeatedly taken out each month, if the lender charges exorbitant interest rates like so many have in the past; it can get consumers into serious upward spiralling debt. It also gave the pay-day loan industry a very bad name. With the number of complaints rising daily, (from January to March 2014 there were 10,155 complaints), the FCA decided that action was needed.

New capping measures introduced 

Having consulted with a number of HCSTL industry stakeholders, the FCA introduced a series of measures in January 2015 to clip the wings of some of the more outrageous lenders. They imposed a maximum interest rate of 0.8% per day across the industry; they capped default fine amounts at £15; and they enforced a loan limit whereby no one would have to repay more than twice the original loan amount.

It seems to be working; at least in terms of the way that the industry is being perceived. From January to March 2015, the number of complaints about exorbitant fees, and heavy handed tactics from debt collection agencies fell by approximately 45% down to 5,554.

A light at the end of the tunnel 

It means that now, more than at any other time in the past, pay-day loan borrowers have a better chance of being able to manage their way through to not only paying off their debts on time, but of limiting and hopefully avoiding further borrowing in future. Another key factor in helping people to realise the implications of pay-day loans, is the recent changes to advertising rules that have been introduced by the Committee of Advertising Practices. 

A better, fairer pay-day industry emerges 

The price being paid for the perceived improvement to the image of the HCSTL industry is smaller profits for pay-day lending operators, and less of them. With strict limits being now enforced on rates, many of the more unscrupulous lenders have decided to withdraw their services from the High Street as their highly lucrative businesses can no longer charge such absurdly high fees. The truth of the matter is that the industry is better off without such lenders, and borrowers feel a lot safer and more in control of their financial futures too.    


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