In years gone by the way in which a consumer could borrow a small amount of money has changed quite considerably. The market for short term loans is a very different place compared to years gone by and this is mainly due to a complete change of product. This dramatic change is a result of the issues faced by the market and in particular the customers who existed within it. In the past consumers were able to borrow such loans freely and although this to some extent, remains the case today, then the checks in place were so limited that many consumers ended up with a number of short term loans. Although these loans can help on a short term basis, as the name suggests, they should not be relied upon for a prolonged period of time and therefore having a number of them can and did in the past, cause multiple problems for borrowers.
Typically a loan of this nature can be for any amount ranging from £100.00 to £500.00, this means the consumer could be borrowing a large percentage of their normal monthly income against these loans. Due to the fact that in the past such loans required a lump sum to repay the account, this meant many customers found themselves facing a payment of £400.00 plus. It is little surprise then that the borrowers of the time were inclined to instead use the option to extend their loans. An extension meant the customer could repay simply the interest, instead of the lump sum and in doing so delay full repayment until the following month. The issue with this repayment option was the fact that an extension never helped the customer reduce the amount they originally owed. Instead the interest repayment simply served to delay the contractual repayment.
As more and more consumers were found to be paying these extensions, instead of the contractual lump sum repayment as the product intended, it became clear a bigger issue was developing. Some customers found themselves extending and simply repaying the interest so many times that they had already more than repaid the original amount owed but the lenders still required the agreed full repayment. Some customers decided to borrow from multiple lenders in an effort to repay those loans they already had. This of course led to more repayment difficulties down the line. Many consumers had little choice but to default on their loan. These difficult situations led to a complete review of the short term loans market and the way they operated. Several major questions were raised, why were customers allowed to extend repeatedly, with no end in sight and why were lenders allowing some customers to take out multiple loans and continue to increase their debts.The answer fundamentally to these questions was a change of product. The lump sum repayment loans were shown to be too costly and therefore no longer a suitable option for customers looking for a short term loan. Nowadays the product on offer is different and so are the practices that the lenders adopt to approve the loans. A customer applying for a short term loan can now expect to be offered a flexible instalment based product where the repayment term can be extended from the point of application over an agreed period of time. This may mean a 3 month repayment term or 6 months or even longer for some lenders. By offering a range of repayment terms this immediately offers the customer the option to select a term that suits their individual financial circumstances which is a massive step forward for the market. This also places a certain amount of accountability in the hands of the customer to ensure they do not select a term which is simply impossible for them to repay.
The lenders are helping to back up this product offering by ensuring their checks preformed at the point of the application are more in depth. It is now typical that a lender will carry out a detailed review of the applicants credit reference file; including information relating to other short term loans. It is very common too to verify the employment data supplied by either calling the number supplied in the application or requesting documentation from the customer. Finally and most importantly it is now becoming common place that a lender will ask the applicant to detail all information relating to their monthly incomings and outgoings, all of which helps to support a more consumer focused and flexible lending environment.
Short term loans, making sure the different options are always explored
The short term loan market is a massive market in the financial industry, there are so many different loans to choose from within it and this leaves the customers with a few tough decisions to make for example, how much do they wish to borrow, what type of loan do they want, how long are they willing to repay set amounts back for. In this article I am going to focus my intention on the short term loan market and explore different options within the industry. There are many positive aspects of short term loans but there are also negative factors. The different options always need to be taken into consideration before any application is completed and finalised.
In the short term loan market there is a monthly loan that could be taken out by customers who needed a quick amount of cash for a small amount of time. These loans had high interest rates and they were designed to help customers who do not have a good credit repayment history. The loan amounts can vary but typically short term loans offer customers from £100.00 up to £1,000 but each lender may be different so possible higher amounts can get accepted. The flexibility on these repayments can be very limited in the way that after an amount is borrowed the full balance must then be repaid on that persons next pay date, if a large amount is borrowed then repaying the full capital and interest back in a one off instalment will be very difficult and it could lead to repayments being missed and the account entering into a default stage. If the full balance is not affordable then the main other option for the customer would be to make the interest only repayment and this does not pay the capital back so next month when payment is due the customer is in the same financial position as before. This is unfair for the customer and it turns out to be a very expensive option.
Instalment loans are a very common type of loan in the market place, these are now also looking to offer customers a short term lending solution as well as a long term financial option. They can loan customers the money quickly and then set up repayment terms for a period of between two to twelve months until the balance is cleared and paid off. This in itself is more logical than clearing debts in a one off instalment as it is much more affordable and realistic for the customer to achieve. Failing to make any loan repayments can lead to severe negative consequences for that customer. Before any repayment term for a financial product gets obtained a customer should always take the monthly repayments into consideration and make sure they have enough disposable income to pay them, also to take into consideration would be the overall amount of repayments that become due over the term. The longer the repayment schedule, the more repayments that become due meaning the amount repaid in total can be a lot more than anticipated and what was borrowed in the first place.
In regards to exploring the different financial products that customers request and the different lenders out there offering the products there are many sites online that can determine what the better products are. These sites in detail forecast the different lender criteria’s, they can show the cheaper interest rates, these can vary however due to the customers individual circumstances, also feedback can be provided on the lenders that may come into question. That one is useful as customers can rate and write reviews on the different lenders and based on these people having a similar financial background there comments should always be checked, reviewed and monitored. Choosing the right loan is also vitally important for the customer as people always want the best loan in the market place available to them and they always want the right lender that is available. With short term loans the repayment term and the interest rates are the main factors on deciding who to use but it is always so important to explore different options available and not just rush into any application with anyone. Also make sure that before any application is submitted that as a customer you are dealing with the lender directly and not with a financial broker as they charge heavy fees and can never guarantee a loan in the end anyway.