Over the past few years, banks and building societies have tightened lending policies in such a way that almost no unsecured loans are available today. Consumers are therefore not safe to find another loan and consequently we now have record levels of credit card debt.

Although the interest base rate remaining at an all time low of 5%, the credit card companies are slowly increasing interest rates, with the new rules imposed on the industry, intended to give consumers a better deal, it is likely interest rates will continue upward. Basically if the consumer gets a better deal, that means credit card companies will produce less money than they wanted and therefore look to make a difference through increased interest rates.

However, there is one other area of ​​unsecured loans, which has grown massively in the last 3 years and a growing number of news – good and bad. Payday Loans are another area.

A report by Consumer Focus watchdog group, claims that the number of people who take a Payday loans have increased 400 percent over the last 4 years. It is estimated that £ 1200000000 borrowed every year now, with 1.2 million people took an average of 3.5 loans per year, with each loan of about £ 300. This is a surprising growth, especially when interest rates on different types of loans ranging between 2 and 5000 percent.

Not surprisingly, with such a high level of interest rates, a large number of people believe this is nothing more than legalized loan land, it is claimed lenders pray on those most vulnerable communities.

So what exactly are Payday Loans and why there are people who agree with the high interest rates?

Payday loans aimed at people who need small loans of between £ 100 and £ 1200 and who want this money immediately.

Applications are made online the most part – although there are some “brick and mortar” companies, most of the transactions carried out on the internet.

In some cases there are no credit checks done, which can become the main attraction of course. With no credit checks which application is made, the creditor may still lend even if the credit check indicates a poor credit history such as a person with a County Court Judgement, may still be able to borrow, while other lenders will refuse credit.

When implemented, consumers provide their bank creditors and debit card details and also said on the day they are paid. If you receive the money transferred into their account within a few hours.

They agree that the lender can take the money (plus costs) directly from their accounts when the funds are available for example when they had just paid-hence the name “loan fee”. In theory this is a nice and simple transaction with both parties get what they need.

High interest rates for two reasons. The first is that people who borrow money in this way the risk of high definition. This means that the default rate (people who do not pay the loan) is much higher, and therefore the risk for the lender is high. To cover this risk they charge a higher interest rate.

The second reason is that because the loan is scheduled to be repaid over a short period of time (1-30 days), and the interest rate calculated on an annual basis it makes it look artificially high. Basically April quoted assumes you will pay the same amount of interest every day for a year when in fact you only have to pay for a maximum of 30 days.

To put this in perspective, the cost of unauthorized overdraft with Lloyds TSB, based on a person’s will £ 200 overdrawn for 10 days will cost £ 85.95 the consumer. Using the formula of April, applied for a loan payment, this is equivalent to April of 46, 450 869 percent – yes it is 46 million percent!

Of course with payday loans with other types of loans, the cost increases if you do not make payment you agree to when you originally borrowed the money.

Payday loan industry does not help himself here with a few rogue lenders greatly increase the cost of late payment and then act unscrupulously in pursuing the debt. These cases have been well publicized and shared with the misunderstanding of interest rates has helped to damage the reputation of the industry, although as credit growth shows they have not really put consumers off.

Payday Loans So our friend, with a place in society along with all other forms of loans, or they are our enemies and should be avoided at all costs?

Well the answer is yes and no!

Payday loans can be a useful way to solve immediate cash crisis, if you have no other access to credit. For example, unexpected bills or emergencies that require immediate cash such as urgent car repairs.

However, if you find that you need a loan payment every month or so then this indicates a more serious financial problems and you should take a close look at your expenses. If necessary, sit with a professional debt management and work out the best solution for you, that does not require constant borrowing.

The point is that such loans form the onus is on consumers to treat Payday Loans responsibly. Never borrow money unless you know exactly how much you will have to pay back and are sure you can meet the repayment plan. If you follow these principles and find yourself short one month then Payday Loans can be a quick simple solution.