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Payday Lenders Have Checks And Balances In Place

by Jim ONeil on February 25, 2012

in Payday Loans News

Payday loans are popular in the UK, which has led to increased media coverage. Unfortunately, not all of this publicity is positive. Even the UK government has made its thoughts public, saying that additional industry regulation is required.

Issues pertain to the customer base, which includes many low-income consumers, as well as the loans APR, which is usually much higher than the rate for a bank loan. What many consumers do not realize is that payday lenders are already regulating themselves.

Not every person who visits a payday lending website or store will receive one of these no credit check loans. UK payday lenders use background checks and other verifications to determine whether an individual qualifies for a loan. Some even contact credit reference agencies to discover the credit standing of each applicant.

Many providers will not issue a loan to a consumer who has another loan outstanding.

Most payday lenders require that a customer be a UK resident over 18 years old. The individual also needs to be employed full-time in a job that provides a regular and relatively consistent amount of income. In some cases, the applicant may be required to provide one or more references who can verify the character and financial status of the individual.

If a loan is approved, the amount of money lent is often based on the income of the borrower. Lenders do not want to extend more financing than borrowers can afford to repay.

Simple Payday is just one of the many online UK payday lenders. The company reportedly receives hundreds of applications each day. However, it only approves between two and five percent of applicants. The industry standard approval rate for payday loans in the UK is approximately four percent.

These statistics are often not relayed to the public by the media. Many consumers think that anyone with a pulse will qualify for these no credit check loans.

Since most applicants are denied this financing, the question becomes why do so many borrowers fail to repay their loans. Unforeseen situations like job loss or illness sometimes come into play. The short repayment period, often no more than one month, works against some borrowers.

Though these individuals have all intentions of repaying the money, an unexpected expense like a high utility bill can prevent them from doing so.

With any type of financing, the lender takes on a certain level of risk. With payday loans, the risk seems to be higher. Many borrowers are already in a financial bind, which is what leads them to take this loan. If they do not manage their money wisely, they may find themselves having to roll the loan to another term.

Some borrowers only see their immediate financial need and fail to consider the loan repayment date. When this happens, they must accept responsibility for failing to repay the loan. The lender is not at fault in this situation. The instant nature of payday lending is what makes it so popular and also so dangerous.

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