What is High Cost Short Term Credit (HCSTC)?
Every loan or credit which fulfill following three criteria will called HCSTC:
1. Loan term should be up to 12 month.
2. Annual Percentage Rate (APR) of interest should be more than or equal to 100%.
3. No pledge, charges or mortgage is asked for security of loan
What is popular types of loan in this category?
Payday loan, text loan, short term loan, unsecured loan, student loan, unemployed loan are some popular funding name which fall under this category.
What is special about this type of credit?
Many lenders ware exploiting the borrows under this category till 2014, so UK government has decided to regulate this and appointed a regulator FCA for this purpose. Now this type of lending is fully regulated since 2015 and saving around £150m from 60000 borrowers per year due to strict compliance.
What limits or caps set by the regulator to save the borrowers?
1. The interest rate including all fees can not be more than 0.8% per day, means APR 292%.
2. The penalty for default can not be more than £15.
3. All interest plus penalty can not be more than amount borrowed under any condition.
4. Interest charged will be simple not at the compounding rate.
5. These rules will continue till year 2020.
What about broker’s charges or fees?
All fees or commission paid by the lender is included in the above cap 0.8% so no question of any payment to any body above this.
How lender see these regulations?
Earlier lenders are charging very high APR but now APR is capped and the margin of lending business for HCSTC is reduced very much. Many old popular lenders are out from the market and many are struggling hard. But some new lenders are using latest technology to reduce their cost ratio and doing well.
What is current trend in HCSTC market?
As we have discussed above these loans are high risk lending from lender’s point of view so they are very strict in loan approvals. Lender offer these loans for very short term say for few days to 3 month and loan amount is also limited up to £1000.
How to get better deal with lender?
Lender’s are working hard for cost cutting in payday loans so they have optimized the use to technology and trying to eliminate middle man(broker) by direct dealing with borrower. They have their own websites which are 24/7 up to connect loan seekers and they offer special discounts for their old customers. So payday loans with direct lender will be the better option.
How brokers are operating?
Brokers are also authorized by the FCA and they are agents to many lenders. They find loan prospects through their offices and websites and sale these leads to maximum paying lender.
Who will pay this commission to broker?
The commission paid to broker is come under the definition of fees which is included in interest charged to borrower and this is paid by the lender only.
Any guarantor or collateral is required for HCSTC?
No, as these loans are fully unsecured so their charges are high.
What about credit check in these loans?
As these are unsecured loans so lender uses all information to satisfy about the financial status of the borrower, credit check is a valuable source to know past credit transactions.
What if poor or bad credit?
All credit score persons can apply for these loans but their approval will be subject to proof of good financial position at present.
What will happen for loan default?
Your interest will continue till final repayment and a penalty of £15 will be additional but all in total amount(principal+interest+penalty) can not be double the amount you have borrowed.