Payday loans have often been in the spotlight and have received their fair share of bad publicity and news due to some lenders charging high interest rates and unrealistic repayment terms. Since the FCA stepped in to put a tighter grip on the payday loans industry, many lenders have been left with no option but to change their borrowing terms to suit customers or risk facing a huge financial penalty/fine.
There have been a number of high profile penalties and fines to various payday lenders with the most notable being issued to the UK’s largest lender, Wonga. Wonga were forced to write off more than 330,000 payday loans to UK consumers, due to their manipulative interest rates and charges that left many customers in greater financial difficulty. The total fine that was issued as a result was over £220 million and was used to pay compensation to previous Wonga customers who were financially hit by charges and interest rates.
Since then, the payday loans industry is more competitive than ever with interest rates being lowered with immediate effect. Payday loans are currently at their cheapest, and it is thanks to all of the lenders that are currently battling for customers that interest rates are as low as they currently are. Not only have interest rates on payday loans been made more affordable, but the repayment terms have also changed massively. Instead of having to pay the full cost of your loan back in a big lump sum on the agreed date, many lenders now allow you to spread the cost over 3 months with 3 equal monthly payments. This makes the repayment process easier as a customer does not have to ensure they have the full amount in their bank account, instead they have up to 3 months to repay the total loan cost, similar to the repayment process on a personal loan.
The biggest benefit of a payday loan is that you can borrow exactly how much you want for the exact amount of time that you need it for. There is no need to borrow a larger amount for a longer period of time, resulting in unnecessary interest charges and fees. Personal loans do tend to have lower interest rates, however they also have minimum borrowing amounts and payment periods, usually a minimum of 6 months.
Although the interest rates may prove to be cheaper than a payday loan, in many cases you are forced to borrow a larger amount due to many lenders only offering minimum borrowing amounts of £1000 over a minimum of 6 months. Payday loans are now becoming extremely flexible in the way that you can borrow as little as £50 up to £2000 over the space of 3 months. Many people are now turning to payday loans as opposed to personal loans due to their short term borrowing solutions and amounts that can actually help you save money rather than borrowing a larger amount that what is actually required.
In addition to this, a personal loan is usually agreed with yourself and a lender, most commonly your bank and takes on average 2 weeks to receive the funds. On the other hand, payday loans online can be agreed and transferred into your account in just 15 minutes, which is why they prove to be so popular with UK consumers.