Payday Loan online.

Many consumers taking out short term payday loans are finding themselves in long term debt situations. The high interest rates are being blamed for this, with some companies charging up to 4,000% APR. Most worryingly is that many payday lenders that are currently operating are not licensed. This is particularly true with online payday lenders.

The Deputy Director of consumer credit at the Office of Fair Trading, Nigel Cates, claims:

“Many payday loan firms are unlicensed and are a cause of significant problems, which is why the OFT is taking action to crack down on this sector.”

While each creditor is different, many consumers are finding the payday loan agreement to be a very costly thing. Late payments often impose fees of £20 per time. Most payday loan companies will charge more than 1,700% interest. If a consumer borrows £300 on a 28 day loan term with an interest rate of 4,214%, it would cost them £390.

Martyn Saville, a credit expert with Which? claims:

“We think charging £90 for borrowing £300 over a month is outrageous. These firms too often cash in on the desperation of the financially excluded, many of whom would be better off borrowing from a credit union or seeking free advice from a debt agency.”

Within four years the amount of people taking out a payday loan has increased by a huge 400 percent. There are now 1.2 million people who have taken advantage of this type of loan. John Moorwood from Wonga, states:

“We don’t deny these charges seem high but we offer a very flexible service, available in minutes.”

Recently the chief of Wonga has also added that the APR is irrelevant with payday loan companies such as Wonga. He claims that just 10% of the company’s customers have failed to repay what they owe within 2 months. Most payday loans are taken out and paid off within one month. When done like this there is hardly any interest added onto the loan. It all depends upon how much has been borrowed. Consumers are told before they accept the loan, how much they will be paying back. The only issues come if the repayment is not made at the end of the loan term as agreed.

Other problems that have recently affected the payday loan industry are direct debit payments. When consumers do default on a payday loan, many lenders are now attempting to take the money without checking with the consumer. This is causing many consumers to end up even further in debt. The Office of Fair Trading has now stepped in and has warned that it will be clamping down on the misuse of direct debits.

Despite the recent bad press however, thousands of consumers are still likely to be accepted for a payday loan over the course of the year. There are many reliable payday lenders out there. Payday loans are not suitable for everybody, but there is no denying that for millions of people they have been a lifesaver.