Over the last 20 years or so, we have seen a huge growth in the quick/fast loans sector which has attracted more than its fair share of controversy.
Until the Financial Conduct Authority stepped in back in 2014, some customers were being charged interest rates annualised in the thousands of percent.
The problem was that those seeking instant funds were often turned down by more traditional lenders and forced to look at quick/fast loans.
Due to limited income, what began as a short-term loan was often increased and extended, attracting even greater interest and often penalty charges.
The fast loan sector we see before us today is very different. It is more regulated, more transparent, and while interest rates are still relatively high when compared against traditional loans, these are not traditional scenarios.
The payday loan industry is one which is probably most associated with quick/fast loans, but there are numerous different options available today.
What Is a Quick Loan?
The easiest way to describe a quick loan is a form of short-term credit, usually used in emergencies, created for speed and convenience. As this type of credit tends to attract those with limited assets, they are nearly always unsecured, although there may be opportunities to add a guarantor.
The traditional quick loan client would likely have a poor credit rating and be looking at relatively small amounts to tide them over.
There will be occasions where those with assets and steady income stream require a quick loan. Assuming they can offer a greater degree of security compared to those with limited income, limited assets and poor credit ratings, they would likely attract a lower interest rate.
However, the interest rate would still be significantly higher than a traditional personal loan. For those looking at relatively short-term loans, it is the speed at which these applications can be processed, which is the key.
When you look at quick loan interest rates in more detail, you’ll often see relatively small term loan interest rates annualised at rates which can often be in excess of 1000%. For those who are able to repay short-term loans on time, these annualised rates are largely irrelevant.
However, for those who struggle to repay short-term debts and continue rolling over and increasing their loans, these rates can be a huge problem.
Quick Decision Loans
As the name quick/fast loans suggest, the main attractions of this sector are the speed at which it can operate. The Internet has also brought fast loan companies to the masses, and rightly or wrongly it just takes a few moments to apply online.
Decisions are made almost instantly and if accepted by the customer, funds can often be in your account within the hour and sometimes within 15 minutes.
There is no doubt that the Internet has changed the way in which quick loan companies operate. They can focus their advertising, target specific areas of the population and the ability to apply online takes away much of the stigma of years gone by.
Pre-Internet, you would be forced to call a quick loan company or even visit their offices to go through your details. However, now you can apply for a quick decision loan 24-hours a day seven days a week in the comfort and the privacy of your own home.
Criteria for Fast Loans
In the majority of fast loan applications, the amount of money tends to be relatively small and therefore seen as “limited risk” by lenders. However, you should not assume that they take an undue risk because as with any financial transaction, the interest rate will reflect the risk.
The higher the risk, the high the interest rate, although top-end rates in excess of 1500% per annum will shock many people.
The criteria used to consider a fast loan application tends to be relatively basic:-
- Applicants must be over 18
- They must hold a UK bank account
- Have debit card details to hand
- Evidence of their monthly income
- Details of their monthly expenses
- Provide the name of their employer
- Confirmation that they are a UK resident
There is a general misconception that this industry is not bound by the same regulations regarding money-laundering and identification. This is simply untrue. Proof of identification and proof of address will be required with all applications to fulfil the lender’s money-laundering obligations.
As a consequence, there is now a trail leading from the lender to the borrower in the event that funds have been used for inappropriate activity.
In the vast majority of fast loan applications, the above criteria will be enough to make an instant decision. However, there will be a case where the application is referred, and the lender may require further details, especially where assets and guarantors are involved or those with no regular income.
A referral does not necessarily mean the application will be rejected; it just means that further information will be required in order to arrive at a final decision.
What Is the Interest on a Quick Loan?
As we touched on above, prior to the 2014 intervention by the FCA, many saw the quick loan market as unregulated and predatory. Interest rates well into the thousands of percent were regularly quoted meaning that many customers would never be able to pay back their loans.
Thankfully the situation has improved dramatically in recent times although many of the leading lights of years gone by have fallen by the wayside.
The best way to show the interest on a quick loan is to look at various comparisons in the lending market:-
- UK base rate of 0.1%
- Traditional mortgage rate between 3% and 4%
- Personal loans from 10% to 32%
- Overdraft interest rates up to 40%
- Quick loan interest rates up to and in excess of 1500%
Under current UK financial regulations, all lenders are obliged to quote not only the headline interest rate but also the annual percentage rate (APR). Even though there have been much stricter regulations introduced regarding penalties and additional fees, sometimes the headline interest rate and be significantly lower than the APR.
The APR is calculated by taking into account all accumulated charges. Therefore, when looking at the “best value for money,” you should be comparing and contrasting the APR between individual loan options.
When calculating the annual interest rate/APR, the figures often appear skewed to a higher level because short-term rates are annualised. Even with relatively short-term loans, lenders would need to see a minimum return to make it worth their while.
It only becomes a real problem for borrowers who are unable to repay their initial loan and are forced to roll the funds over adding interest on interest. There is nothing wrong in being cautious about using quick/fast loans, but in the right environment, they are a very useful means of securing short-term finance.
Loans via Brokers
In a similar fashion to mortgage brokers, brokers specialising in short-term loans are often looked on with a sceptical eye. The advent of the Internet effectively helped to supercharge the quick/fast loans market-making online applications possible and immediate decisions more common.
As we mentioned above, such as the speed of technology today that once an application has been confirmed the funds can be transferred within 15 minutes. This prompts the question; do those struggling with short-term debt issues really need to employ the services of a loan broker?
If we take a step back and look at the situation from a distance, there are numerous benefits to using loan brokers:-
- A deep understanding of the marketplace
- Ability to negotiate on behalf of clients
- Close relationships with some lenders
- Alternative solutions recommended
When you consider various penalties, high-interest rates and often challenging repayment timetables, a loan broker could potentially pay for themselves many times over. Can you imagine shaving the 1500% annual interest on a loan?
What about the opportunity to avoid punitive penalty charges? Maybe even gain access to lenders who would otherwise be out of the reach of the general public?
There is a natural temptation to compare loan brokers with mortgage brokers, but they are very different. Mortgage brokers help secure funding often in the hundreds of thousands of pounds while loan brokers would likely be dealing with funds under £10,000.
On the flip side of the coin, there are potentially huge interest payment savings available on short-term loans while there is reduced room when negotiation on mortgage interest rates.
So, what should you do if looking to employ the services of a loan broker?
Independent Loan Broker
As the name suggests, an independent broker (otherwise known as a “whole of the market broker”) is able to negotiate with all lenders in the marketplace. While time is very often of the essence with regards to quick/fast loans, they will often know who to go to straight away for the best rates.
It is also very helpful to create a loan option which is sculptured around a client’s particular scenario as opposed to taking a one size fits all approach. It is perfectly natural that some independent brokers will have closer relations with some lenders than others.
However, this does not divert from their ability to carry out a whole of market review.
Tied Loan Broker
Again, in a similar fashion to tied mortgage brokers, there is a general misconception that a tied loan broker cannot by definition be as competitive as an independent loan broker. Yes, they will deal with a much smaller group of lenders and will be barred from approaching those outsides of their tight group.
That said because the fast loan market is relatively liquid and very active, it is likely they will direct significant levels of the business to their partners. As a consequence, we might expect busier loan brokers to be able to negotiate very competitive terms with their closest partners.
You might be surprised when comparing and contrasting the APR rates negotiated by tied loan brokers compared to their independent counterparts. Don’t automatically assume that tied brokers are uncompetitive as this is very often not the case.
Short Term Loans
A short-term loan is deemed to be anything up to a maximum one-year duration, but very often, these loans will be taken out for a matter of days. In a perfect world, they would be a short-term solution until a long-term fix could be found.
In reality, many people forced into taking short-term loans will often become dependent on this source of funding going forward. As a consequence, it can be relatively easy to get into serious financial trouble.
Some of the more popular short-term loans include:-
Short Term Payday Loans
If there is one area of the quick loan market which has attracted huge controversy for the industry over the years, it is the payday loan sector. Historically, many payday loan lenders charged horrific interest rates, numerous additional charges and penalties and very often their customers never got out of debt.
Indeed there were rumours of unscrupulous payday lenders using underhand debt retrieval tactics – some of these actions ended up being prosecuted in the courts. As a consequence, it very quickly became evident that the authorities would need to clamp down on excessive charges and unsavoury practices.
The FCA stepped forward in 2014 to introduce an array of new regulations which included:-
Capping Interest Chargeable
The new regulations deemed that interest and fees must not exceed 0.8% a day of the amount borrowed. This was a significant move and slashed some of the higher interest charges overnight leading to reduced interest payments and more breathing space for borrowers.
Fixed Default Fees
Aside from the fact that many payday lenders charged exorbitant interest rates, they also added an array of penalty fees. Regulations introduced by the FCA capped these fees at £15 which offered significant help to those towards the troubled end of the market.
Cap on Total Repayments
Just after the turn-of-the-century, it was difficult to avoid nightmare stories of relatively small loan amounts quickly mushrooming into thousands of pounds. This pushed many borrowers to the brink as the interest charges, and penalties meant they would never repay their debts in full.
There was a collective sigh of relief when the FCA introduced new regulations which capped the cumulative level of fees and interest charges at no more than the initial amount borrowed.
There was one unfortunate consequence of the new regulations with a 35% drop in loan numbers during the first five months following the introduction of the changes.
In reality, this was a painful pill to swallow but one which allowed the industry to move back to a fairer/firmer footing and assist borrowers.
The introduction of logbook loans has been of great assistance to many of those suffering short-term financial setbacks. As the term suggests, this loan involves the use of a vehicle as collateral and the transfer of the logbook to the loan company.
Using a document described as a “bill of sale” the borrower is still able to keep possession of the vehicle while making loan repayments. This mix of a transferable asset and collateral has helped many borrowers negotiate many low-interest rates than those offered where no collateral is available.
There are numerous issues to consider with regards to a logbook loan which include:-
- A cautious collateral valuation by the logbook loan company
- Obligation to maintain vehicle insurance payments
- The owner must keep the vehicle in good repair
- MOT tests must be undertaken at the relevant time
The idea that the lender is somehow obligated to cover the costs of maintaining the vehicle is a misconception. The borrower is still able to use the vehicle.
As a consequence, they are legally obliged to keep the vehicle in good working order, insured and only driven with a valid MOT certificate. As soon as the loan is repaid in full, the logbook will be returned to the owner, and the loan agreement will come to an end.
Quick Loans for Unemployed
While it would be wrong to suggest that those in-between jobs are not able to access quick loan facilities, it can be challenging. If you look at this from the side of the lender, there is on the surface a significant risk of a potential default.
As a consequence:-
- Interest rates could be relatively high
- Loan duration relatively low
The lender will carry out all of the traditional checks such as credit references, etc. although it is up to the borrower to persuade a lender that they can afford the repayments.
Even though they may be unemployed at the time, they may have additional income from:-
- Redundancy payment
- Pending personal injury claim
- Future asset sale
- Future employment opportunities
- Unemployment benefit
There will still be a balance between the level of funding made available, interest rate and duration, which will reflect an individual client’s specific scenario. In this scenario, where short-term funding can be tight, there may be a temptation to request a longer-term loan.
Whether this would be successful bearing in mind, the financial backdrop is debatable – although the introduction of any collateral or a guarantor would help.
Quick Loans for Those With Bad Credit
When you read the phrase “quick loans for those with bad credit” there is often a temptation to dismiss this out of hand. Surely if an individual has a bad credit rating, they are potentially high risk, and not even short-term lenders would consider them.
Thankfully, many lenders take a broader approach to their lending activities and will often delve deeper into the finer detail.
Issues to consider with regards to bad credit ratings and loan applications include:-
Timing of Bad Debt Activities
As all bad debts and missed payments remain on your credit file for six years, you may have recovered your financial situation since your last misdemeanour.
What on the face of it may look like a bad debt client could be someone who might actually have recovered their financial status – returning to more traditional levels.
As a consequence, an initial rejection could become a confirmation, perhaps after a more detailed referral.
Type of Bad Debts
There are perfectly legitimate situations where individuals have been left with bad debts through no fault of their own. While the vast majority of lenders will see your credit rating as black or white, with no room for negotiation, this is not always the case.
If you can prove that a bad debt held against your name occurred through no full of your own, and you are currently in receipt of regular income, this may not be the end of your application.
It would be foolish to suggest that any issues on your credit report would not incur higher interest rates, but these problems may not necessarily curtail your plans for a short-term loan.
Contrary to popular belief, there is still a degree of negotiating room with the majority of lenders.
Reasons for Fast Loans
There are numerous reasons why you may seek a fast loan, many of which will relate to unexpected expenses.
These could take in issues such as:-
- Unexpected home repair such as plumbing, electrical, roofing, etc
- Emergency car repairs
- Rental payments due prior to the next payday
- Repairing/replacing a critical home appliance
- Unexpected medical bills
This list gives an example of some of the more common reasons why you might require a quick loan service. In reality, a quick loan lender is not necessarily too bothered about how you’re using the funds and is more focused on your ability to repay.
That said, lenders would not authorise a loan for more speculative activities.
The quick/fast loan market has attracted its fair share of controversy in years gone by, particularly the payday loan sector. However, the introduction of new regulations in recent years has curtailed some of the exorbitant interest rates and penalty charges.
While there is no getting away from the fact that quick/fast loans tend to attract those who have trouble obtaining traditional finance, they do offer a means to an end for many people.
It is imperative that those looking for quick finance are aware of their monthly living expenses, income and can demonstrate an ability to pay. Unfortunately, we have seen many people in years gone by struggling to repay their initial loan and seeing interest and charges increase this figure substantially.
As a consequence, it is highly advisable to seek advice before signing up to any loan agreements. Thankfully many people are now open to the idea of using loan brokers to negotiate the best deal possible for their scenario.
How Can Flexy Loans Help?
Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.
They have already helped thousands of people get loans already, and they can do the same for you.
Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you. All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.
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