How to afford short term loans
The market for borrowing online has now been in existence for a number of years. As a result consumers who want to consider this market can expect to find a wide range of choice and flexibility in the modern day market place. This was not always the case and in fact short term loans used to be somewhat restrictive. As the years have passed lenders who operate in this market have come to realise that in order for the product to remain suitable for the modern day consumer, changes needed to be made. In the early days of the market the product being offered by online lenders was incredibly simple but therefore also somewhat limited in terms of its offerings. Many lessons have been learnt over the last decade whilst consumers have been using the market and nowadays the service being offered is more affordable than ever. In order to understand this fully, let’s explore the market in more detail and how if used correctly, it is more of a useful resource than ever before.
For many years short term loans lenders offered a pretty standardised product to consumers. This meant regardless of who was lending the money, the offering in terms of product was likely to be the same across the board. The product itself was known as a classic payday loan. These loans were applied for online, as is the case today, and offered consumers the opportunity to borrow between £100.00 and £500.00 in most cases. Lenders who approved applications made online allowed the customer to borrow until their next employment pay date. On the agreed date, which was never more than 31 days away, the customer was asked to repay the entire balance in full. This meant a lump sum repayment made up of the loan borrowed and the interest which was charged by the lender. Continuing the theme of keeping the product clear and simple to understand lenders normally charged interest at about £30.00 for every lot of £100.00 which was borrowed. This meant a £300.00 loan would normally cost the customer £390.00 on the agreed repayment date. Although this product was clear and straight forward to understand, as the years passed it became clear it was not ideally suited to serve the real needs of customers. This was highlighted by the fact many consumers simply could not afford to repay a lump sum and instead took the repayment alternative offered by lenders known as an extension. Extensions or rollovers as they were also known allowed the customer to repay the interest on the agreed date and delay the full repayment until their next pay date. In the example of a £300.00 loan, this meant paying £90.00 followed by a further £390.00 at a later date.
Quite clearly extensions only really provided a short term fix to what was a bigger issue in terms of affording these classic short term loans. Many consumers in fact extended their loans, paying only the interest, for many months on end, never reducing the full repayment which was due. With this in mind it is little wonder the market needed to change and quickly before consumers were unable to use its services effectively anymore. As a result of this lenders moved away from the old style of lending and instead switched their short term loans offerings to instalment based products. This means instead of asking a customer to commit to a large lump sum repayment on their next employment pay date, borrowers now have the option to repay over a number of months if they wish to do so. In fact many lenders who now exist in the market offer their customers a flexible number of repayment options, designed to work with their existing bills and expenses. This could mean spreading the repayments over 2 months, 6 months or even 8 months. Obviously the longer the term the more interest which is payable so it is always advisable to repay such loans in the shortest and most affordable time frame.
The changes which have taken place in the last few years for short term borrowing are certainly a positive step in the right direction for this market. More so than ever consumers now have much better and clearer repayment options which allow them to make a sensible and informed borrowing choice. As time continues to pass it seems more and more likely that the old style of borrowing will become a thing of the past and these new and flexible instalment based loans will become the best choice all-round.