Short term loans in the UK have, historically, been the domain of the loan shark. However, since the financial crash in 2008 these loans have become a common, more legitimate, feature in the UK. Often known as Pay-Day loans, they offer a short-term solution to a financial situation many people find themselves in when they cannot meet their monthly financial commitment. This normally may happen because of some outside and unforeseen events.
Quick Fix to Certain Situations
They offer a quick fix to a situation which previously, prior to the 2008 crash, many banks would have overlooked, certainly with a less harsh financial penalty. These loans have now become available for slightly longer periods of time that can be up to, 6-12 months. As the mainstream banks began to charge a fixed fee of £25.00 for unpaid items plus fees for the unplanned borrowing of similar sums, these loans became a relatively cheaper option for many people. They would choose to use these short-term loans rather than having to pay a penalty of £50.00 plus for an unpaid item to the bank. This was often compounded by a further fee from the recipient of the unpaid sum. This would, seemingly, make these short term Loans, relatively better option.
Compound Interest Rate
The actual rate charged (compound) is calculated on the interest rate and the term of the loan usually added on a daily or monthly basis which depends upon the term. Einstein called Compound Interest Rate the 8th wonder of the world. The higher the risk the higher the rate offered for short term loans.
Financial Ombudsman is There to Help Borrowers
There have been a huge number of complaints to the Financial Ombudsman over the collection methods used by the varying companies offering these loans when a borrower defaults. They have been persuaded, under threat of more stringent legislation, to lend more responsibility and offer more suitable repayment solutions to defaulters. Most firms seem to be complying as it is a very lucrative market.