Payday loans are something which are often in the news and you may have recently seen that one payday loan company; Wonga, have gone into administration. This may have sent shock waves through the payday loan sector and it could possibly have an effect on customers of payday loans as well.
What caused the problems?
This sort of problem in a company can be caused by many different factors and this is almost certainly the case here. However, one big issue that has been blamed on the problem is that the law has changed with regards to how much money payday loan companies can charge. They used to be able to charge anything they wanted and people could end paying back many more times than the sum that they originally borrowed. The change in law restricts how much they can charge and charges are capped so that the interest and fees can never be more than the amount the person borrowed. This protects customers against high charges.
Will this help customers?
This change in law does help customers because it protects them against being overcharged. Unfortunately it seems that Wonga’s business plan did not allow for this and they were not able to cover their costs once the new law came into effect. It could mean that other payday lenders may suffer the same fate which may not be good for anyone wanting a payday loan. It could mean that they may have trouble getting a loan at all or that they have less choice and competition and so prices might be higher.
Should I get a payday loan?
There is no reason to let the situation with Wonga put you off getting a payday loan if you think that you should get one. There is a risk that other companies could go out of business like Wonga, but there is always a risk of this whenever you borrow money, do any financial transactions or buy anything. If the company goes out of business, it is most likely that you will still be required to repay the loan using the agreed payment terms. The administrators will still have to act within the law, so you will not be able to be charged more money for no reason but will still have to repay what you owe.
Is it safe to get a payday loan?
You should have no reason to think that there are any more risks to taking a payday loan than there was before. It should still cost a similar amount and have similar rules. Of course, once the law changed, the charges on loans changed to be in the favour of borrowers so that is a positive that has come out of it and should give you more reason to feel that it is a safer option for you.
There are other risks associated with a payday loan, as there are with all loans. These are mainly that you will not be able to repay the loan when required and get charged extra money. It is therefore wise to work hard to protect against these risks by carefully considering what you can normally afford and whether you will be able to manage this loan repayment. You should be able to take a look at you bank account statements to find out.
Which lender should I use?
If you are concerned about a lender going out of business then you obviously want to choose the one that is least at risk of this. You may have felt the most popular or well-known was the best bet, but as the best known one has gone out of business, then this could change your mind. It is possible to find out how businesses are doing by looking at their accounts which are held by Companies House. These can be accessed for free online. However, you may find that too time consuming, so it might be better to just keep up with the news on the different lenders as if any others are in trouble it is possible that it will be reported in the media.
It is still wise to also look at what the different lenders are offering and which seems to be the best for you. Look at the costs of the loan overall but also at how much you have to repay and when. You can then think about which lender might be offering you the best price. You may also want to look into the reputation of the lender and check their terms carefully so that you know what to expect. Some people also like to contact customer services to see how helpful and polite they are and therefore how good they might be should you have a problem when you take the loan out.