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Why Payday Loans is the Good Guy

With high interest rates, payday loans are often repaid on the next payday or 30-days, hence the name payday loans. The market grew massively following the financial meltdown and now over 1.2 Million loans are issued in the UK every single year. As the market expanded, so did the clamor for its abolition by many consumer groups.

New Payday Loan Rules & Regulations

The payday loan industry was badly hit with a lot of regulatory impositions made at the beginning of 2015 after a public outrage on lending and collection practices of companies. This led the Financial Conduct Authority or FCA to take some measures and protect consumers which resulted in the following regulations for payday loan companies:

  1. A cap on the daily interest rate to 0.8%.
  2. An overall cap on the maximum that a customer will pay in terms of interest and default fees.
  3. A cap placed on late payment fees which were set at £15.

However, the consumer profile of borrowers from the UK is highly different and distinct from other customers, say in the USA or Australia. IRN Research said that UK loan borrowers are most likely young adults with incomes that are below the average. Their resorting to payday loans is supposedly what’s causing them more financial woes. In UK, over half of the household income is set below £25K compared to the USA where it is almost 80%.

Furthermore, borrowers in the USA are often adults without bank accounts or financial records and are basically ‘poor,’ with not so good credit scores. This is not however, the case for borrowers in the UK. The research revealed further that about 35% of the customers have a household income exceeding UK’s national average, with 7% of borrowers earning over £50K per annum.

Truth be told, payday loans are a financial saving mechanism for most young professionals.

Finance Regulations

A significant number of people using payday loans are often those with household income falling below the national average. The FCA assessed that since they took over the regulation of the market, the number of payday loans and amount borrowed from lenders dropped by 40%. Now, over 70,000 borrowers are denied access to these lenders. But people aren’t sure if this is a good step going forward.

It is very crucial that those who were denied access do not turn to other loan sharks and other unscrupulous financing systems. Due to this, efforts must remain exerted to boost people’s financial literacy and consumer assistance so that they will find support in times of financial difficulties.

The brand new regulations on the payday market ushers brand new day for payday lenders to start with a clean slate. They now can reconstruct their reputation and operate better and more responsibly. So long as these companies follow brand new regulations and adhere to laws of the market, there is no reason why payday lending can remain to be a very useful financial tool for many people.

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Warning: Late repayments can cause you serious money problems. For help, go to