While the drive to cap payday loans was understandable and necessary, there is no doubt that this type of lending has been unfairly demonized by the popular press. After all, short-term lending adds value when it is used responsibly, with many of the issues surrounding this funding vehicles linked directly to consumer misuse.
It is also important to note that some short-term lenders have already blazed a trail for responsible borrowing, and this is something that is all too easily overlooked in the rush to condemn operators. This also does a disservice to sensible users, however, who miss out on valuable data that prevents them from making an informed decision when seeking funds.
With this in mind, here are three things to look for when appraising short-term lenders and attempting to identify the best operators: –
The Presence of Capped Interest Rates
While the government may have capped payday and short-term lending rates in recent times, it is important to note that some operators did this of their own accord before an official mandate was passed. Take the student lender Smart-Pig, for example, which has always offered loans at a fixed rate of 0.8% per day (which is respectable for an unsecured loan where firms are forced to shoulder a higher risk burden. This is indicative of a good lender, and one that is committed to delivering a viable service that benefits customers over time.
The Lack of Hidden Fees and Late Payment Charges
On a similar note, many payday firms have been chastised for their underlying business model which saw the bulk of their revenues generated by late payment charges and hidden fees. This type of underhand and convoluted agreement is now being outlawed, while progressive lenders have also created transparent models that discard undisclosed fees and do not punish borrowers punitively if they cannot make a specific repayment on time (so long as this is communicated, of course).
Appraise the Full Range of Terms and Options
Another issue associated with payday lending is the lack of repayment options, as most loans (including interest) must be repaid within a period of four weeks. This is prohibitive in the extreme, and short-term lenders should offer greater flexibility when it comes to repaying your debt. More specifically, they may allow you to make repayments over the course of six months (depending on the amount that you borrow), enabling you to spread the debt and execute manageable monthly repayments that are in line with your income.