What is High Cost Short Term Credit (HCSTC)?
Every loan or credit which fulfill following three criteria will called HCSTC:
1. Loan term should be up to 12 months.
2. Annual Percentage Rate (APR) of interest should be more than or equal to 100%.
3. No pledge, charges or mortgage is asked for security of the loan
What is popular types of loan in this category?
payday loans, text loans, short term loans, unsecured loans, student loans, unemployed loans are some popular funding name which fall under this category.
What is special about this type of credit?
Many lenders wares exploiting the borrows under this category till 2014, so UK government has decided to regulate this and appointed a regulator FCA for this purpose. Now this type of lending is fully regulated since 2015 and saving around £150m from 60000 borrowers per year due to strict compliance.
What limits or caps set by the regulator to save the borrowers?
1. The interest rate including all fees can not be more than 0.8% per day, means APR 292%.
2. The penalty for default can not be more than £15.
3. All interest plus penalty can not be more than the amount borrowed under any condition.
4. Interest charged will be simple not at the compounding rate.
5.These rules will continue till the year 2020.
What about broker’s charges or fees?
All fees or commission paid by the lender is included in the above cap 0.8% so no question of any payment to anybody above this.
How the lender sees these regulations?
Earlier lenders are charging very high APR but now APR is capped and the margin of lending business for HCSTC is reduced very much. Many old popular lenders are out from the market, and many are struggling hard. But some new lenders are using latest technology to reduce their cost ratio and doing well.
What is the current trend in HCSTC market?
As we have discussed above these loans are high-risk lending from lender’s point of view so they are very strict in loan approvals. The lender offers these loans for very short term say for a few days to 3 months and the loan amount is also limited up to £1,000.
How to get a better deal with the lender?
Payday loans Direct Lenders are working hard for cost-cutting in payday loans so they have optimized the use of technology and trying to eliminate the middle man(broker) by direct dealing with the borrower. They have their own websites which are 24/7 up to connect loan seekers and they offer special discounts for their old customers. So this will be the better option.
How brokers are operating?
Brokers are also authorized by the FCA, and they are agents to many lenders. They find loan prospects through their offices and websites and sell these leads to maximum paying lender.
Who will pay this commission to the broker?
The commission paid to the broker comes under the definition of fees which is included in interest charged to the borrower, and this is paid by the lender only.
Any guarantor or collateral is required for HCSTC?
No, as these loans are fully unsecured so their charges are high.
What about credit check in these loans?
As these are unsecured loans so lender uses all information to satisfy about the financial status of the borrower, credit check is a valuable source to know past credit transactions.
What if poor or bad credit?
All credit score persons can apply for these loans but their approval will be subject to proof of good financial position at present.
What will happen for loan default?
Your interest will continue till final repayment and a penalty up to £15 will be additional but at last, your final amount can not be double the amount you have borrowed.
Payday loans interest and penalties are regulated by FCA (financial Conduct Authority of UK). On 02/01/2015 they have notified rules for short term funding to protect customers from any over charge by the direct lenders. Some important point is:
1. Lenders will charge only simple interest and not compounding.
2. The cap for the daily interest rate will be 0.8% and lender can not charge above this rate.
3. The penalty for loan defaults can not be more than £15.
4. I no case interest and fees can not be more than principal amount.
Explanation of FCA rule:
1. Simple interest means, interest will be charged on the principal amount only on day to day basis and no interest will be charged on interest itself. For example, £0.8 interest will be charged for £100 loans per day so for 20 days term interest will be £.08×20=£16 and the total amount payable after 20 days will be £116 only.
2. The maximum interest and fees are fixed as £0.80 per day for £100 this includes all expenses and commission paid by the lender to brokers(in the case of the loan applied through the broker).
3. If the borrower fails to repay on time then the penalty can not be more than £15 and interest will be continuing till the final re-payment, subject to a maximum limit of the amount borrowed.
4. Under any circumstances interest+penalty+collection charges can not be more than the amount borrowed.
What will be the payment schedule if repayment term is more than one month?
Here we explain by taking amount as £600 for 3 months.
|Borrowed amount||Loan term||Interest amount||Repayment after||Amount Paid||Balance Amount|
|£600||3 Month||£144||First month||£48||£696|
As per FCA regulations the APR (Annual Percentage Rate) is £0.80×365=292% per year.
What are credit ratings?
When you go for first-time credit or loan from a bank, your credit record is generated with credit score agencies.
What about if I have not taken any loan or credit?
In this situation, your credit record will be absent in agency’s database.
How no credit history is valuated for payday loans approvals?
This is not good for loan seekers because a lender has no clue about your past loan transactions. So they may be rejecting your application, despite you fulfill all other criteria.
Is a credit record being helpful in getting a loan?
Yes, one should take one loan or credit card to initiate credit recording.
What is bad credit?
There are many reasons for the poor credit score. Some of them like.
1. Credit card or loan repayment defaults or late re-payment.
2. CCJ against you.
3. You are a guarantor for some one else and he has not repaid in due time.
4. Bankruptcy, etc.
How to check if my credit score is poor?
From time to time you should check your latest score with different agencies and try to improve it. You can check your score 24/7 online with these agencies free of charge.
What is the impact of bad credit in getting a fresh loan?
Every lender has their own calculations for the poor or bad credit score, and they do not accept loans below these ratings. They do not suppose to give reasons for their loan rejection. If some lenders agree to fund, they may charge a higher interest rate and approve a loan for the small sum.
How to get the cheaper loan even with bad credit?
You may go with the following options to get loans with normal rates:
1. Find one guarantor with a good credit score.
2. If you have your own home or auto, you can put this as collateral. But this is a risky option that should be avoided.
3. Convince your lender about your sound financial status with some proofs like bank statements and salary slips.
4. Changing the house frequently also adversely affects your credit so if you are staying for a long time in a house will be a good proof of stability to show the lender.
5. Changing house frequently also adversely affects your credit so if you are staying for a long time in a house will be a good proof of stability to show the lender.
6. Improve your credit score by repaying many outstanding loans with one big personal loan.
Can Payday loans be taken as installment loans?
Few months back payday loans are meant for maximum 30 days term, but now in changed regulations these short-term loans can be used as installment loans.
As the name suggests payday loans are based on borrower’s monthly income and are to be repaid in the next salary. The main drawback of this system is that the loan amount can not exceed the monthly savings of the borrower. So loan amount of payday loan is limited to a small sum.
The concept of installment loan in the payday loan has increased the loan corpus for the borrower. Now loan seeker can apply for the high sum (sometimes it may be more than one month's salary) and he can pick any number of monthly repayment schedules as per his financial needs.
The monthly loan installment is EMI of loan plus interest and due date is taken as salary day of the borrower. One mandate is taken from the borrower for auto-debit of loan installment from his bank account.
Why installment unsecured loans are costly?
Unsecured loans are approved by the direct lenders without any guarantor or security so the fall in high-risk category of loans. To mitigate possible losses lenders charge high-interest rates. As installment loans are more than one month term so the interest rate is always more than old one-month payday loans. FCA has fixed the cap for payday loans as 0.8% per day so as number of day increases the total repayable interest will also rise. So are not good for the long term. For long-term loans secured or personal loans are the best.
What are payday loans?
These are short-term loans which are accepted by lenders on the basis of borrower’s monthly salary.
Why the name is given as payday loans?
A few years back these loans are available for very short duration i.e. from the date of loan application to paycheck date only. These loans are to be repaid on coming payday only so the name of the loan given as £Payday Loans£.
What are text loans?
Payday loans can be applied through mobile text SMS so popular names for these payday loans are given as Text LoansMobile Loans, SMS Loans, Text a payday etc.
What is the present form of payday loans?
Nowadays payday loan becomes very flexible in terms of loan amount and repayment duration. One can use them as installment loan also, so can repay a few numbers of the monthly installment falling due on each salary day.
What is the procedure to apply for payday loans?
You have two options for that, first, you visit lender’s office or their websites, and second to visit brokers office or their web portals.
Which will best broker or a direct lender?
As you know brokers are agents of multiple lenders, so you can apply with this group of lenders in one go. But the main problem with brokers is extra time in loan processing because they will prefer to sell your loan lead to most paying lenders and bargain in this process will take time. So it will be beneficial to contact the direct lenders for your loan.
How to save time for direct lender search?
There is one more way to search for lenders without paying anything. Some websites like textloans1000 are working to help loan seekers in lender search free of charge. You can use our services to get free loan quotes in a few minutes. If you feel happy with these quotes then go forward otherwise leave it.
What will be the loan process?
Once you apply for lender search, we will directly send your data to our associated popular lenders of UK, they will process your data and let you know if they are willing to fund you. If you finalized the loan with them, they would transfer approved money into your bank account.
Can I get a same-day loan? Yes, in many cases loan processing and disbursement are completed on the same day of application. Fund transfer to your bank will depend upon your application time during the working day and process of your bank.
What if I have bad credit?
Bad credit does not hold you from the loan applications. In many cases, the lender is willing to fund for poor credit customers also.
Can I skip credit check?
Not at all, After the new payday loan regulation in the UK, it is mandatory for all lenders to check the loan affordability of applicants. So each lender will do a credit check on you before loan approvals.
How some website 100% guaranteed no credit check loans?
These are baseless and false promises. No one can guarantee loan approvals other than a lender himself.
How to improve loan acceptance chances?
You should take care of your credit ratings, apply for a loan amount that can be repaid easily by you, and prove your financial status via the bank statement and salary slips then you can eligible for high acceptance loans.
Which is more important past credit history or present financial status for loan approvals?
No doubt present financial status is more important for short-term loans.
What will be the consequences of non-repayment or late repayment of the loan?
This will cost you more in terms of money and credit score. If you do not repay the loan on the due date then the lender may send your name to the credit score agency for adverse entry or he may hire a third-party loan collection to recover the loan whose charges and interest both you have to bear.
What other options if I feel difficult to repay the loan on time?
You should tell your lender well in advance about your inability so that he can find out the ways to reschedule or rollover the loan.