Over the past few years, there’s been an explosion of loan companies entering the market. Ad breaks seem full of adverts for companies offering fast cash with few strings attached.
However, obtaining money on loan is rarely as easy as this and many people have suffered as a result of not properly checking their contracts, or from irresponsible companies failing to disclose key information in their terms and conditions.
Consumer rights’ groups and industry bodies have called on the government to regulate payday lenders more stringently, but at the moment, people are still falling into difficulties through these companies.
And it’s important, even if you are borrowing money from a bank, broker or other responsible and regulated company, that you fully understand both your obligations and rights.
Payday and unsecured loans
Unsecured loans will often come with stipulations regarding what will occur if you default on payments or fail to pay back the loan. The lender will take action to recover their losses and it’s important you understand what these will be.
For example, some “payday” or “advance cash” lenders state in their terms and conditions that they can contact your employer if needs be. There have also been reports of people cancelling payments as they were unable to pay and having the money taken from their account anyway, putting them into huge financial difficulty.
If you are unhappy with the actions stated in the terms and conditions, or the contract seems vague about what action the company will take as a result of missed payments, you should not accept the loan.
Regarding rates for short term loans, you will often be quoted an APR. However, this is an annual rate, and might not necessarily indicate your actual repayments over a few weeks. You will possibly be given two figures – the amount you borrow and then the amount you have to repay. You need to look carefully at the interest rate small print. If you miss a payment or repay over a few months you will most likely be subject to a very high interest rate, and interest will accrue month on month, meaning your debt can quickly escalate from hundreds into thousands.
With a secured loan, you have the benefit of knowing what will be repossessed if you can’t repay the loan. However, there are still many elements of the contract you need to check. At what point will the items be repossessed? If you get into difficulties, will you have suitable time to try and negotiate a different payment plan? If you choose to repay the loan early, will you have to pay a settlement fee?
If the loan is secured on a car, you must also understand the stipulations regarding ownership. If the car is stolen or written off, what is your obligation regarding your insurance payout? Many lenders will expect you to use it to repay the loan and then buy a new car as a separate arrangement, and you could run into difficulties if you accept an insurance payout and just use it to buy a new vehicle.