Important facts about payday loans in UK

Payday loans have always been criticised, but you can use them if you know how they work.

12:04 10 October 2013

Short term loans are associated with payday loans by many people, which have a very poor reputation. The UK Government backed payday loans a couple of years ago, saying that they cover an important gap in the financial market, only to speak against them recently, accusing the lenders of irresponsible lending.

But how do payday loans work and why are they so ill-reputed? And, most importantly, can you sign up on a payday loan with the same safety that you would have from a regular bank loan? Here are the facts that you need to know about payday loans:

• payday loans can be purchased from about 240 firms and 2,000 loan shops across the UK, which means that they are relatively popular among UK citizens; however, banks don't usually offer this product, so you won't have the same safety guarantees;

 

• all payday lenders, be they firms or shops, are regulated by the Office of Fair Trading, which means that they have to follow certain safety measures after all;

 

• Payday loans are short-term in nature and are hence expensive with high interest rates that make them profitable for the lender. However, if you know precisely that you are going to repay the loan in time, you should be able to breathe easy;

 

• payday loans are still considered to be an important financial product on the market, offering loans to persons who would otherwise have to turn to illegal lenders for the support they need;

Of course, you should only turn to payday loans if you have an immediate, pressing financial emergency, and should try to avoid them otherwise. You can sign up to a payday loan provided you know you can repay it in time and remain aware of the interest rates and charges.