Payday loans, also known as payday advances are small, short term loans secured against a customer’s next paycheck. Payday advance loans rely on the consumer having previous payroll and employment records. Payday loans in the UK are a rapidly growing industry with four times as many people using such loans in 2009 as compared to 2006. In 2009, 1.2 million people took out 4.1 million loans.

Each year in the United Kingdom, 1.2 million people resort to payday loans as a temporary means of getting by. This is because emergencies tend to erupt at almost all instances and banks are not always readily available to furnish loans to individuals, especially those with low income. Payday loans therefore are available to these people as the next resort.

Statistics also show that a total of 1.2 million pounds is borrowed in the form of payday loans every year in the UK. This therefore encourages economic growth and it thus boosts the financial market. This also means that if this amount of money is borrowed, much more comes back with the inclusion of interest rates and other charges.

However, as much as statistics may show growth in this industry, one must also put into consideration the event of default in payment. Statistics have shown that the default rate is at 10% to 20% and one study has shown that defaults in payment cost payday lenders around a quarter of their annual revenue. Defaults are sometimes referred to as bad debts which the lender has to replace on his or her own so as to put the company back to the position it was in had the borrower paid up.

Benefits Of Payday Loans

Lots of debates come up when it comes to the discussion of payday loans in the UK. To some people, payday loans are a must have while to some, it is a ‘no no’ situation. However, be as it may, payday loans have many advantages and many people celebrate its creation and development.

Firstly, they help citizens get money quickly. This system is as opposed to the traditional bank loan system which takes ages to process a single loan. The payday loan system is instantaneous and swift. One therefore gets money on the go.

Emergency loans

Secondly, this type of loan system aids during emergencies. To live in itself is a risk and one cannot foresee the possibility of uncertainties along the way. It is therefore difficult to budget for such uncertainties especially for the low-income earners who cannot afford to take out insurance policies. Payday loans can be taken at anytime during the month to cover for expenses incurred for the particular emergency and the borrower can then reimburse the lender with a little interest on top when he or she receives the paycheck.

Thirdly, payday loans encourage money circulation throughout the year thus fostering economic growth. With the payday loans online system, no one holds back due to lack of money as it is possible to get an instant loan to develop any project. Therefore, at every instant, money is always changing hands thereby boosting the economy in the UK.

Lastly, this system assists low-income earners due to the provision of lack of security. Traditionally, bank loans require a form of security that the bank can hold on to incase of default of payment of the loan. Low-income earners may fail to have a substantial asset to secure with the banks. Payday loans in the UK therefore offer this class of people the opportunity to take out loans to foster their various projects.