The credit crunch and payday loans

The advent of the credit crunch has left many feeling the pinch; increasing amounts of borrowers are now turning to payday loans.

When we think of borrowing, the amounts that come to mind run into over four figures and sometimes five. This type of borrowing is a process and with background checks being done, there will be a time lag between submitting the loan and receiving it after approval. While all this is being done, the daily cash flow seems to be in order and there is no longer the hurry to obtain the loan.

Yet, there are those for who even a two figure amount can be a big amount, let alone a four or five figure one. It is for this section of the population, when a financial upheaval takes place, obtaining a quick loan can become a nightmare. To these people an unplanned expenditure of 10 pounds is a gigantic amount. So, where can these people go to obtain a fast loan, which do not even have the collateral or the time to wait for the passage of the loan to go through?

Payday lenders

Fortunately there is a type of lender in the fiscal market who offers assistance for these types of loans. Lenders such as Cushtee Cash provide small loans ranging from GBP 100 to GBP 1500 are available to those who face a monetary crunch with the minimum of fuss. The online lender of whom there are many, step into the breach of offering small loans without the need for paperwork. These loans are known as payday loans.

Just as the name suggests payday loans are just that. It is a loan from payday to payday and caters to small amounts. The cost of capital would be approximately GBP 25 per GBP 100 for a period of one month. Thus if a loan for GBP is taken at the end of the month the payback amount would be GBP 125. If for some reason there is a delay for three months then the pay back amount would be GBP 100 + GBP 25 x 3 which equals GBP 175. The rate would seem rather high but the lender takes into account bad debts, delayed payments or dishonoured cheques.

Payday loans no faxing are a fast growing industry in the United Kingdom. In 2009 there was a four fold increase when compared to the period 2006. The average amount of a loan is GBP 300 and is applied for by those whose incomes are less than GBP 25000 per year. To be a lender, as per the Consumer Credit act 1974, they should obtain a license from the Office of Fair Trading (OFT). This is to ensure that the lender acts with responsibility and has to operate under set guidelines. However there is no restriction on the amount that could be charged as interest. That element is left to the discretion of the lender. Advertising too is regulated by the Advertising Standard Authority. All advertisements of payday loans should meet with certain criteria and should carry information that these loans are available to those who do not otherwise have access to credit. The rate of interest too should be stipulated.