The short term loan industry includes companies that offer payday loans and other high-cost short-term credit. When money changes hands in this way, you’ll always have reputable businesses that stick to the spirit of laws and make sure they serve their borrowers well. Unfortunately, you’ll also get businesses that are in it to take advantage of those laws and the borrowers they’re meant to protect.
This is why the Financial Conduct Authority’s newer rules for payday loan price caps are good news for the industry. These new laws put reasonable caps on interest and on default fees, as well as a ceiling on total costs. This helps regularize the industry and sites like cashfloat.co.uk, educate borrowers, give borrowers much better financial protections when taking a loan, and better recourse in the event of both miscommunication and untoward practices.
Here are the 3 elements of which you need to be most aware:
- The FCA announced an initial cost cap of 0.8-percent per day. What this does is it limits the cost of borrowing itself. Interest and fees on a high-cost short-term credit loan can not exceed 0.8-percent per day. Let’s say you’re borrowing 400 pounds over the course of 30 days. You repay in full at the end of those 30 days. The interest and fees accrued are capped at a maximum of 96 pounds.
This protects borrowers from lenders who previously may have ratcheted up fees or included hidden costs and fees within initial lending agreements. It also protects borrowers from having more withdrawn by a lender than was owed via Continuous Payment Authority (for which additional borrower protections were also created).
Not all businesses will ask for the full 0.8-percent allowable per day. Some will offer more reasonable terms and it may depend on your qualification for a loan and dependability in paying it back. All businesses are capped at 0.8-percent a day, however. That’s good news for borrowers.
- Default fees are now fixed at 15 pounds. Let’s say you’ve defaulted on that 400 pound loan. Before, a lending company could have charged you exorbitant fees. Again, more reputable companies wouldn’t resort to this. In many cases, we may not have even charged 15 pounds. However, these laws are in place to protect borrowers from those businesses who possess less self-regard. For many of us, these new laws are similar to our pre-existing standards and so the shift to accommodating them is practical.
In any case, your default fee would be capped at this reasonable amount. Oftentimes, borrowers don’t miss a date because they’re hiding from repayment. Usually, such a mistake is the result of an unexpected circumstance – a paycheck came late, or the bank took longer than expected transferring the money. Sometimes another bill comes due and a borrower has to make a tough call. By capping the default fee, this allows borrowers to avoid the panic something exorbitant might spark. Borrowers know they might take a hit in such a circumstance, but it will be a fairly minor one. (Always tell us if you might be a day or two late with a payment. We know life can get tough. In certain circumstances, we’re able to be flexible to accommodate the unexpected.)
- The total cost of a loan can never exceed 200-percent of the initial amount loaned. This means that even if you default on the loan and miss several payments, you’re protected from your debt climbing beyond twice what you borrowed. These circumstances are rare because we will always run a credit check on your finances before agreeing to a loan. We need to protect our business as well, and we’ll only agree to the loan if there’s a reasonable expectation you’ll be able to pay it back.
The new FCA protections are a boon for borrowers, and long overdue. It’s a terrific decision in making short term loans a healthier and less risky proposition for those who need help in dire times.