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Published 2017-11-09 12:00:00

Are Payday Loans Insured

Payday loans also known as Short term lending, come in a wide variety of forms. Some with credit checks and some without, some charging fees others not. They are put in place to help people who fall on hard times financially and are in need of extra money over a short period of time. Usually you would pay a short term loan off over three installments over 3 months sometimes it can be longer but usually never over 12 months, referred to as short term lending. Payday loans get their name due to the borrowers getting a loan then paying it back on their next pay day. There is usually a high rate of interest due to the loan period being short this varies depending on the company.

Insured payday loans

In the past the only loans that was got insured are bank loans, or any loan that helped with the cost of mortgages and credit card loans. As time went on more and more payday loans started to become insured. Insurance companies have offered a substantial amount overdraft options for borrowers. Back in 2015 the FCA came down on payday loans and capped the amount they could offer to protect borrowers. Now the payday loan industry has been told to tighten their security to help protect borrowers from any fraud or misleading information. Federal action has taken prompt action when it comes to the risks of payday loans. They are rules in place with companies who specialize in payday loans under the FDIC institution. FDIC make sure there is law in place to offer protection in the loan industry, making sure the company complies with security, income recognition and keeps an eye on third party relations.

What are the risks of payday loans?

Payday loans come with some risks. With their low lending and quick repayments it opens a door for borrowers to fall into an even bigger financial problem than before if they cannot afford the re payments. Short term lending can have a huge interest rate due to companies APR% increase. If you were to get declined from a payday loan it can have a daunting effect on your credit rating score and put you at risk of bad credit. Falling behind on payments can land you in debt and that alone can incur extra charges and also you could be referred to a debt recovery company, some companies take court action.

Company with security in place

This is one of the companies with security in place for borrowers.

Cash Carrot:

Cash Carrot Loans are 100% secure and have a fraud team support section on their website. A member of the Cash Carrot team or any of their partners will never contact you or give your personal information out. All your information is stored on their secure data files and the law enforcement may have access to any doubts you provide the company with in regards to safety. When it comes to Cash Carrot finance they make sure that the borrower is protected and secured.

The price cap for borrowers

The FCA believe that customers should not have to pay back more than double from what they borrowed so from January 2015 the FCA put in place a price cap for payday loans to protect users from paying back more than what they should. For example, people who borrowed £500 would be paying back well over £1000 with charges and interest rates. The struggle for borrowers was getting far too much and often led people into a debt streak. The FCA made three major changes to the loan industry that would help keep borrowers safe from failing the repayments.

  • The interest per day lenders was allowed to put on top of the repayments was 0.8% nothing more.
  • The default was capped at £15. This was to ensure the borrowers from falling even further into debt.
  • Capped with no more than 100% rates this will allow borrowers to pay no more than the loans amount.

It is estimated that by the FCA putting these plans into action it will save customers at least 193 a year that's roughly all in all 250 million.

Due to the high demand of payday loans, the actions of FCA have already saved thousands of people from falling into debt traps and they will continue to do so. They already have more plans to help secure the payday loan industry even more.

Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk