This week has seen payday loans come under criticism from debt advice groups who claim that some companies are charging excessively high interest rates on this type of loan. The debt advice groups are calling for a cap on interest rates for payday loans however, the Office of Fair Trading (OFT) responded to this by stating that payday loans would be covered by investigations of the issue of responsible lending and that although the loans, often used by people to tide themselves over until they get their wages, generally attract high rates of interest, the businesses offering them are properly licensed, professional and responsible.

UK payday loan providers also responded to the criticism by explaining that higher interest rates are levied on payday loans to reflect the level of risk being taken by the lending companies.

As one would expect, the payday loan companies claim they are providing a valuable service to customers who may be unable to get credit elsewhere. However, this claim is supported by the rapid rise in popularity of the products offered by the payday loan companies as they provide a real alternative to unauthorised overdraft charges, pawnbrokers and loans from friends or family.

Payday loans do not involve a credit check and for this reason they are sometimes referred to as bad credit loans. No credit check means that these cash advance type loans are therefore available to those who are unable to get other forms of credit such as credit cards, traditional long-term loans or overdraft facilities. The loan companies do however require proof that the applicant is currently employed and that their next pay cheque will be more than sufficient to repay the loan in full.

Many payday loan customers report that by getting a payday loan they are able to resolve their immediate cash-flow crisis and buy themselves a little bit of breathing space in which to assess their finances and to get advice on how to manage their money better.

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Gordon Brown has commented that we are seeing signs of recovery in the UK, but just how realistic is he being? Some may argue that this may only be pre-election rhetoric and his financial posturing is simply a cheap (excuse the pun) way of getting voters on board. Despite the posturing signalling some kind of basis for recovery, there are still hundreds of jobs being axed throughout public services. This includes soft ‘targets’ such as libraries and recycling departments.

Are We Clear of the Recession?

I and indeed many others feel that the recession will take much longer to recover from as the far reaching slump had devastating effects on the financial sector. People are still losing their jobs, many of whom are at an age whereby they cannot find alternative forms of employment. Politicians need to be realistic about how the recovery will shape and, more importantly, if there is to be more troubled times ahead they need to be honest about what cutbacks need to be implemented to balance the books.

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Credit card companies are in the press again for the charges they implement. Raising interest rates retrospectively has been deemed inappropriate by some financial commentators. The only limiting factor on credit card interest rates is competition and this helps some companies keep their rates lower. Credit cards can be useful, for example when abroad, when the amount is not repaid you may find that charges will add up.

Credit Card Fee's are Rising

Compare this to payday loans companies who charge £25 per £100. You borrow an amount and then have a set amount to repay. This often works out cheaper than banks who slap massive fees on unauthorised overdraft charges and credit card companies who will put massive charges on unpaid monthly bills. Payday Loans are different to credit cards and will get you cash quickly, but they, like credit cards will still need to be paid off so ensure that you only borrow what you can afford to pay back.

Banks are also starting to implement charges onto there loyal customers – the craze for claiming back bank fees has recinded as recent legislation outlines that this will no longer be possible. Banks are therefore no longer able to offer what some have called free banking; however, the recent record profits that Barclays have published (£9 Billion) means that they really do not have to implement any other additional fees!

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