Whether you are searching for a short term loan, payday advance loan or bad credit loan, changes in regulation in the loan industry, means that loans are now safer. We have seen the FCA bring in new sets of rules and guidance that simply was not there under the OFT. Due to the necessary checks required around affordability and making sure customers are treated fairly, means more people understand what they are signing up for & therefore less likely to be faced with charges making payday loans safer.
The FCA rules include the following:
- Initial cost cap of 0.8% per day – Lowers the cost for most borrowers. For all high-cost short-term credit loans, interest and fees must not exceed 0.8% per day of the amount borrowed.
- Fixed default fees capped at £15 – Protects borrowers struggling to repay. If borrowers do not repay their loans on time, default charges must not exceed £15. Interest on unpaid balances and default charges must not exceed the initial rate. QuidMarket charge nothing for late payment.
- Total cost cap of 100% – Protects borrowers from escalating debts. Borrowers must never have to pay back more in fees and interest than the amount borrowed.
- No one will pay back more than double the amount they borrowed. Someone taking out a loan for 30 days and repaying on time won’t pay more than £24 in fees per £100 borrowed.
The new set of rules has forced lenders to carry out tight affordability checks. Also a cap on the overall cost of a payday loan is in place. The cap introduced in 2015, to stop fees spiralling out of control.
The research, conducted by the Competition Market Authority (CMA), found the following:
- The average size of a payday loan is £260 and almost all loans are below £1000
- Payday loan customers take out many payday loans over time with the average lender taking out approximately six loans every year.
- Payday Loan borrowers’ prefer to use two or more direct lenders.
- Most payday loan customers prefer taking out loans online i.e. 83% vs. 29% who take out loans on the high street. 12% of all payday loan users borrow using both channels today. On amount, borrowers borrow more online i.e. £290 compared to the high street £180.
Safer than the alternatives
One in 16 (6%) customers said they would have used an unlicensed lender who is not a family member or a friend if they had not been able to access a short-term loan.
The Financial Conduct Authority (FCA), which introduced the tougher rules for payday lenders, recently said it was putting high cost loans under the spotlight. This includes payday loans, overdrafts, door-to-door lending and logbook loans – where a car may be put up as security for a loan.
While short term loans are easy to access online, they are not necessarily the cheapest option for you. It is extremely important that these lenders are registered with FCA authorised.
Look at the lender’s website check they have a FCA number , and ask yourself if you feel confident to leave all your details in their hands. Ensure that the connection with the website is secure and that you are operating from a protected computer or handheld device.