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Are you Comparing a Payday Loan with a Payday Loan

New loans with the same lenders?

The UK payday loans market, or “short term high cost credit” market, has taken a massive battering with the introduction of the regulator the FCA to the sector. The merits, rights and wrongs, results of this are open to interpretation but one thing that is clear is that a payday loan isn’t necessarily a payday loan anymore.

A payday loan is designed to be paid back at the customers next pay day – all very simple. Some lenders insist that it’s in 2 pay days time if the customers next pay day is within a few days of the application. Anyway, the point here is that it’s very short term, emergency, borrowing.

For years the UK public have been hit by payday loan TV adverts, radio adverts, newspaper adverts – just about everything a payday lender could advertise on –they did. It’s now a generic phrase used when looking to borrow a few hundred pounds.

Borrowing may never be quite the same again

Payday loan lenders have, generally speaking, had to look at ways to allow them to stay in business. The FCA have introduced a “cost of credit” cap which has meant many lenders have had to re-look at the way they operate. To be clear, the FCA have done a good job in driving some people from this market that should not have been operating in it – but the new restrictions make it difficult to be profitable when lending a relatively small amount over a relatively short period.

So what have lenders done? Lenders need to abide by the rules, naturally, but a cost of credit cap (this is applied daily) means a couple of things. It is more profitable for a lender to lend money over a longer period – so the “payday” part of this loan is increased to a 2 – 6 month loan.

Also, a lender makes more money if you borrow more – so borrowers may find they are offered more. In reality could a £200 payday loan applicant end up borrowing £500 over 2 months instead? Possibly. Was this the intention of the new regulations from the FCA? Definitely not.

It will annoy some people that I have mentioned profit a few times in the above text. Lenders are not charities – they are companies that need to make a profit like any other company out in the world.  Sensational headlines often slam companies from making profits – this is the whole point of businesses. If businesses don’t make profits then individuals don’t have jobs.

If you’re looking to borrow a small amount of cash, until you next get paid, it is probably going to be more difficult than it was a year ago. Borrow more over a longer period and you could stand a better chance of being approved. The term “payday loan” will live on for many years though, long after more payday lenders move to longer term products.

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