Payday loans have established an important place in the credit market, providing quick financial solutions to millions of people every year.

Despite this, payday loan lenders get a hard time for the industry’s reputation, regularly portrayed as loan sharks by the press.

Should this be the case? Like most unsecured debts, payday loans have pros and cons, but when used appropriately can offer crucial financial support.

How Have Payday Loans Changed For The Better?

A Brief History

Originating in the US, the concept of payday loans is centuries old.

1964 – The Bank of England was established as the UK’s first central bank. As time went on, more large banks were formed through mergers.

Only the wealthy minority had the option of borrowing money from banks. Most people turned to cheque cashing shops and pawnbrokers who offered an alternative.

1980s – 1990s A boom in the economy followed a period of economic volatility. Banks were able to issue their own credit and debit cards, competing for trade selling services like short and long-term loans.

Payday loans shortly followed, with banks making huge profit from risky loans. Able to charge higher interest rates to borrowers with bad credit scores, most of society became accustomed to living in debt.

2008 – The cycle of irresponsible lending and personal debt grew unsustainable, and the economy collapsed into the credit crunch.

Following the financial crisis payday loans saw a steep rise as regulations were instated discouraging banks from risky lending practices.

The Financial Conduct Authority

The Financial Conduct Authority (FCA) was formed in 2013 as a financial regulatory body.

The FCA ensures that all financial markets are honest, fair and effective in their services to customers. They were responsible for introducing stricter regulations to protect borrowers.

New rules included:

Now, all legitimate payday lenders have the FCA logo on their website and can be found on the FCA Financial Services Register, giving borrowers more security than ever before.

The Money Service Advice has helpful information to prevent you falling victim to scams from untrustworthy lenders and fraudulent sources.

When Should You Take Out A Payday Loan?

The most important thing to remember is that payday loans aren’t intended to be used as long-term solutions to ongoing financial issues.

Payday loans take care of immediate expenses between pay cheques. The amount you can borrow is relatively low, so they’re best used to cover situations like:

You are given a 14-day ‘cooling-off’ period in the event you change your mind about your payday loan.

If you decide to withdraw from the agreement you must pay back the interest on any credit you have used, but all additional charges must be refunded.

The Perks Of Payday Loans

Payday Loans: The Pitfalls

To Summarise

Strict regulations are now in place to protect customers, with greater information available to let people make well-informed decisions.

If used with care, payday loans offer a legitimate, secure, cost-effective service.

It’s important to know what you’re committing to, but if you meet the requirements and are aware of the risks, then it’s time to find yourself the best payday lender.