Payday loans – a cause of consternation or absolute lifeline?

Experts who analyse the lending market have grave fears for householders who, fearing their credit rating is low, are turning to online instant cash loan providers, short-term loan specialists advertising their product on TV and in magazines and a range of high street outlets who advertise instant cash loans, providing they can prove their income.

Charity organisations and consumer analysts have also expressed their fears about the pull, the attraction, that having the ‘no credit check loans’ sign has over people who have poor credit history. It is ironic that they are the market being most lured to this ‘easy way out’ when they are the precise people who should be steering well clear of going further into debt than they already are.

However, when the Office of Fair Trading were asked to investigate the practise of instant cash loan services in 2010, the results contradicted current fears, stating that they were a ‘legitimate and useful’ institution that served a purpose for those who needed money but were being refused by traditional lenders due to their careful lending policies, rejecting anyone seen as a risk without question. It is perhaps from these practises that payday lending has blossomed in recent months and is often a first port of call for those who still believe that banks and building societies will not even consider their applications.

In a recent report, the BBC outlined the instant cash loan process from start to finish, based on the findings of the OFT investigation. In this two-part article, we look at their interpretation of the report and how that affects the consumer in an economic climate that has improved little since the results of the OFT report were published.

What’s an instant cash loan and how do they work?

High Street cash-advances can vary slightly to those provided by online instant cash loan providers. In the case of a high street loan, it is usual to provide a cheque dated on or around the day that you expect to have the funds available; the repayment amount will be agreed depending upon how far in advance that date is and the amount you want to borrow. You may have to provide the last three months’ most recent pay-slips and proof of your identity and address.

An online instant cash loan is just as simple a process. You approach a lender by filling out a form providing your bank details and the amount you want to lend. You will know how much you have to repay in advance by their advertised rates or, the current fashion is the use of a ‘slider’, which you move until you’re happy with the repayment and the date. The lender will then confirm your eligibility through whatever their chosen validation method is and that you have a regular income that can meet the repayment on the date you set out on the online form, based on that information. The money you have asked to lend is usually in your account within 24 hours.

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