Short-term lending industry shows increased consumer confidence
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Short-term lending industry shows increased consumer confidence

The highly controversial high-cost short-term (HCST) credit industry has seen a huge increase in consumer confidence in the UK.

The high cost loans, otherwise known as payday loans used for emergency purposes, have always been subject to huge criticism from the press and MPs. In particular, payday giant Wonga was once accused of “usury” for facilitating loans with an APR of over 6,000 per cent. However, following new regulation, the industry has seen a dramatic change in transparency and consumer confidence.

The introduction of FCA

The Financial Conduct Authority took over as the main regulator for consumer credit in 2014, officially launching in January 2015.

One of its first changes was to ensure that all lenders and brokers trading in the payday sector were fully authorised and fit to carry out regulated activity. Companies were granted “interim permission” whilst applications were being processed, with most companies taking around 12 months to become fully authorised – such as QuickQuid, Peachy and Uncle Buck.

The rigorous process managed to remove more than half of the companies offering high-cost short-term loans from the industry – allowing only the most compliant to survive.

The role of authorisation has significantly de-powered the role of brokers in the industry, who until this point had been regularly capturing data and re-selling it multiple times for profit. Prior to 2015, it was unclear for many consumers which website was a lender or broker, hence many applicants would fall victim to their details being sent to hundreds of companies, bombarded by text messages and phone calls and in several cases, upfront fees being taken out as a cover for “admin fees”.

This led to the payday industry receiving over 10,000 complaints between Jan and March 2014. But since the introduction of FCA regulation, the process of brokers selling data has diminished significantly.

The price cap

In addition, the FCA the introduced a price cap for the payday industry to limit the amount that lenders could charge. This capped daily interest at 0.8 per cent, equal to £24 per £100 borrowing and meaning that customers would never repay double the amount they asked to borrow. This resulted in several more companies leaving the industry, deeming that the margins were no longer “commercially viable”. A price cap on default charges was also established, limited to a one-off fee of £15.

One function of the price cap was to encourage new competitors in the market to compete over other factors such as even lower rates, flexible product offerings and customer service.

Checks

All lenders were required by the new FCA regulation to carry out full credit and affordability checks prior to funding a loan. This indicates that lenders have to prove that a borrower can afford to repay without falling into financial difficulty. The role of underwriting was somewhat loose previous to FCA – with several loans granted by lenders in an attempt to increase profits by extending loans and triggering late fees. In fact, several large lenders were fined millions of pounds for failing to demonstrate adequate checks. Wonga was fined over £200m in October 2014 and QuickQuid fined £1.4m in November 2015.

However, with strict checks now a requirement, there is an emphasis on only giving loans to those that can afford it. The downside is that less and less people will be approved for loans as lenders become more restrictive. Wonga notoriously cut its number of approved loans from one million in 2014 to 550,000 in 2015.

Transparency through comparison websites

In an attempt to increase transparency of prices, all lenders are now required by the FCA to include a link to a comparison website clearly on the website homepage. This should allow the user to see clear comparison tables and compare the rates of that lender against other competitors. Leading comparison sites in this industry include Money.co.uk, All The Lenders and Quiddi Compare.

How consumer confidence has increased

The role of regulation has significantly increased consumer confidence for those looking for a high cost loan.

As we approach the three-year anniversary of the FCA’s regulation in the industry, we see that applicants have a much better idea of what lenders charge, without fear of very high costs or their personal details being sent to numerous companies and fees being taken out for no reason.

This has been emphasised by the number of people searching for payday related products on Google and the topic being mentioned considerably less in the press.

In addition, a recent review by the FCA of its price cap indicated that it was “happy” with how it was being conducted and how there were overall significantly less complaints in the industry. The price cap and regulation for the high-cost short-term credit industry will not be reviewed again until 2020.

Source: Real Business

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Chain-break: How you can STILL buy if your sale falls through

PICTURE the scene. You’re moving home, and you’re in a chain. That is to say, you’re selling to someone who’s selling to someone else. The deal is days away from exchange, and then you get the phone call. The estate agent telling you that your buyer is having to withdraw from the transaction.

Your first thought is that you’re going to lose the dream home that you’re currently trying to buy.

Your second thought is the amount of money you’ve racked up so far on solicitor’s costs and surveyor’s fees that you’re about to lose.

Believe it or not, on average currently one in three chain-based transactions fall through in the UK, and although the reasons why vary, the consequences are normally always stressful and expensive.

So, if this happens to you, what are the options available if you still need to move and don’t want to miss out on the property that you’re aiming to buy?

Firstly, it may be possible to keep the property that you were going to sell, remortgage it to release enough equity to make your onward purchase, and then keep it and let it out.

This course of action makes you a landlord, albeit an accidental one.

It’s is a common way to deal with such a problem, particularly in areas where there is high demand for rental housing.

If this route appeals, you’ll need to get professional mortgage advice to ensure that the numbers stack up, and that you have the correct mortgage in place for both properties.

It’s not a cheap solution, as you also need to bear in mind that if you’re keeping your existing home and letting it out, then you’ll pay an additional 3% of Stamp Duty and Land Tax on the property that you’re buying.

You’ll also need to ensure that you understand the ramifications of the additional income tax you’ll pay on any rental income on the property you’re letting out.

However, for some people whose individual circumstances mean that they need to move quickly, this can be a reasonable solution, although one which requires significant research to ensure that you understand fully what you’re letting yourself in for and how much it’s going to cost you, both in the long term and the short term.

Another option is to take out a bridging loan.

This is typically a short-term funding option, used to ‘bridge’ the gap between when you need money to purchase a property, and when you’ll receive funds on the property that you’re selling.

A bridging loan can be a very useful solution to help facilitate a transaction that otherwise wouldn’t be able to move forward, for example if a chain falls apart.

However, there are a couple of things that are important to consider.

Bridging finance is basically a short-term loan offered at a high rate of interest, which can make it an expensive option.

Secondly, you need to be really confident that your sale is going to go through, because the money is advanced to you so that you can make your onward purchase on the basis that you’ll be paying it back in full within a very short timescale, usually a couple of weeks.

A typical bridging loan is based on 1% interest per month on the total amount that you’ve borrowed, and you’ll need to have an exit plan, in other words evidence how you’re going to repay the loan and when, in order to be considered for this particular type of finance.

The other thing to be aware of is that bridging loans aren’t regulated the same way that normal, mainstream mortgages are.

So, if this is an option you’re considering it’s really important that you receive expert, professional advice from a broker who can review a range of bridging loan products for you, to ensure that the bridging finance company are reputable and that you fully understand all the fees you may be charged and how the interest on the amount you’re borrowing is being calculated.

As Brian Murphy, Head of Lending for Mortgage Advice Bureau whose best buy mortgages for home movers have been released today explains, “Being involved in a transaction where a chain breaks down can be exceptionally stressful, but there are options available to help you progress your move.

“If you decide to let out your existing property and need to remortgage to release equity in order to help fund your onward purchase, it’s likely that you’ll need a specific Let to Buy mortgage, which is a slightly different product to a typical Buy To Let mortgage.

“If you’re going to raise bridging finance, it’s essential that you get professional advice, as you’ll need permission from your existing mortgage lender to do so.

Either way, it’s crucial that you are totally comfortable with the financial implications of whatever course of action you decide, and that you can afford all the fees and repayments and additional Stamp Duty, if it’s due, before you continue.”

A third option is to sell your existing home to an investor who specialises in buying properties quickly, in order to free up your cash so that you can proceed with your sale.

Typically, if you’re using this kind of service, you’ll be offered a price that is well below the market value for your property (or BMV as its known in the property industry) for example probably only 75% or 80% of what it’s worth, but they will facilitate a transaction quickly.

Historically, this has meant that this route has really only been used by those who are desperate as a last resort, due to the amount of equity lost as a result of such a transaction.

However, there is now a welcome alternative to the typical BMV investor model.

Nested, who are a new entrant to the market, offer to guarantee up to 97% of the market value, with the additional upside that a further amount is payable to the seller if Nested are able to sell the property at or above the agreed valuation.

If the property sells at under the value guaranteed, Nested make up the shortfall, not the seller.

Nested was launched in January 2017, and don’t class themselves as a BMV investor, rather an ‘ethical estate agent who is able to guarantee that they will sell your home’.

So far, the company has successfully sold over £400million of property, enabling their clients to sell their current home quickly in order to buy another, or assist those who have been in a failed chain to complete their purchase when they’ve lost a buyer.

The cost for using the Nested service is a fixed fee of 1.5% of the selling price of the property, which is very similar to what many normal estate agents would charge, although of course the crucial difference is that Nested guarantee to sell the property once the valuation has been agreed.

There is an additional fee of up to 1.5% if the guaranteed valuation is exceeded when Nested sell the property.

The service currently operates within the M25 and covers Greater London, however the company are rolling out nationally early in 2018.

So, if you receive that phone call from the agent telling you that your buyer has pulled out, don’t panic.

There are options available. Yes, it’s awful when life throws a curve-ball like this but, by taking appropriate professional advice and researching your options thoroughly, it’s still very possible to proceed with buying that home you’ve set your heart on.  Just take a deep breath and, as the saying goes, keep calm and carry on.

Source: Express

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How & why short-term business loans make sense for experienced entrepreneurs

Many business loans are substantial, long-term commitments that come with a mountain of paperwork to wade through and complicated lending terms that are foreboding for business owners that only need a reasonable amount of extra money for a limited period.

While long-term business lending is intended to cover expansion requirements, buying out a competitor or for another critical need, short-term business loans are suitable for businesses that have some immediate expenses or ones that are upcoming over the next few months. The typical shorter loan period is repayable over a 12-month period, although there are some that run longer than this to provide a bit more time to repay.

Which Businesses Can Access a Short-term?

In this first instance, short-term business loans are available to UK businesses registered as a limited company, operate as a sole trader, or as an incorporated partnership. For companies, they must be registered with Companies House as a UK company with its company filings being up-to-date.

Most lenders will want to see at least one year of business operations (often longer), with the most recent yearly statutory accounts filed with Companies House confirming a 12-month turnover that exceeded £100,000. While a short-term business loan is often unsecured, being a homeowner is usually a plus. The debt obligations of the business must be manageable at their current levels – preferably with a good deal of slack to afford the additional repayments of a short-term loan – and the director shouldn’t have any outstanding creditors from a previous business either.

See https://www.merchantmoney.co.uk/small-business-loans/short-term-business-loans/ for a guide on the application specifics for small business owners looking for short-term funding.

How Much Can Be Borrowed?

The maximum loan amount depends on the lender’s policies and loan criteria. A business that’s only been operating a year with limited profitability will not be offered as much as a more established business with a million-pound turnover and six-figure profitability every year.

Short-term small business loans fall between the £3,000 and £150,000 range, which keeps the repayments reasonable and the total interest and closing costs affordable.

Best Uses of a Short-term Business Loan

Managing the demanding cash flow requirements of a company is tricky. There are times accountants make a mistake or omit some important upcoming expenses, which leaves an unexpected hole in the accounts that must be filled. It’s a situation that usually can be traded out of using future profits to fill in the hole where the miscalculation was made, but in the meantime, the company faces the likelihood of running below a zero balance until they can recover. To ensure they can keep trading profitably, a short-term loan is a useful, structured way to deal with the issue rather than using an overdraft facility that often seems to work like quicksand; the more you use it, the deeper you sink.

A lower than expected seasonal sales season can cause a problem with balancing the books through the worst periods of the year. With a company that is showing positive signs of sales growth the rest of the year but is suffering through their usual seasonal dry spell, a short-term facility makes sense to survive the period and use upcoming profits to pay off the loan a few months’ later.

Expanding staff or larger facilities to handle a surge in business where the cash flow drags behind the gross sales is another area where a long-term lending facility won’t make much sense, but a 12-month one certainly does. Having enough staff on-hand improves morale while the business is under strain from rapid expansion. Similarly, opening an annex or taking over the next-door office helps to manage staff numbers ahead of the rise in profitability.

When Is the Wrong Time to Take Out a Short-term Loan?

Taking out a short-term loan for a business that’s declining isn’t the smartest move. There’s no telling whether the sales decline is going to continue when it’s not due to known seasonality reasons. It is best to survey the customers (especially the ones not buying the product or service) to determine what is causing them to pass on your offer? Then fix the problem.

A company that is perennially short of working capital won’t benefit much from a short-term facility because unless the fortunes of the business improve in the short-term too, it will be ill-equipped to repay the loan in time. Taking out a new lending facility to repay the first one won’t work like it does with a credit card minimum payment because short-term loans are not necessarily paid in full all on the back-end.

There should always be sound, well-considered reasons for taking out any lending facility. Otherwise, it’s an expensive way to meander along in a business being unsure what to do with the extra cash. More money and no plan surely are a bad idea, especially for a company that will need to repay the loan, plus interest, inside of a year or less. Borrowing prudently is the best idea.

Source: BM Magazine

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Short Term Loans Solutions in the UK

If you have to pay unexpected expenses urgently, you may consider using short term loans, often referred to as payday loans or payroll deductible loans in UK. These are quick and effective punctual solutions. At the same time, if they are not used with care, they can cause more financial problems. If you think that a short term loan may be useful for you, you should learn as much about the subject as possible and evaluate its advantages and disadvantages before making an application. Use this guide to make the right decision as a borrower.

With short term loans, you can get cash quickly. This is to your advantage. You will have a sufficient amount of money to solve the financial emergency that you are experiencing. These loans are fairly easy to obtain as well. Most lenders have flexible qualification criteria and some do not even perform credit checks. When you borrow the money, you will have to leave a cheque on the loan amount plus interest and fees with the lender. The lender will cash it on your next payday. This way, you will pay off your debt automatically. It is possible to negotiate an extension of the repayment term, but you will continue to pay interest and other charges may apply as well. As a result, the loan will become more expensive and harder to repay. You will find that short term loans are some of the most expensive lines of credit available to consumers and UK-based companies. They, mostly, use payday UK login.

The APR (annual fee) which shows the total cost of the loan can be several hundred percent. The interest rates are high and so are the fees charged by the lenders. If you use a loan of $ 100, for example, and you have to pay it in two weeks, you will have to pay $ 120 to the lender. If you do the calculations, you will find that the APR on this loan is 426%. This is higher than the APR in traditional personal loans. The main disadvantage of short term loans is its high cost. If you find it difficult to pay what you owe, you can ask for more money or extend the term of the loan, but this can only make you into more debt. Eventually, you may end up in a debt trap that is hard to leave. Short term loans are not suitable to use when you do not have enough income to pay your expenses.

If you use them to fill the gaps in your budget, you will have even lower disposable income over the next month. They can be useful only as punctual solutions when financial emergencies arise. If you have to pay an unexpected medical bill or to buy a new refrigerator, you can use such a loan with confidence. You’ll have to manage on a smaller budget over the next month, but the situation will return to normal after that.

Source: Feast Magazine

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Are Short-Term Loans Cheaper Than Overdraft Fees?

There’s been a lot of news recently about overdraft fees — the fees charged by banks to their account holders after an account dips below a £0 balance, meaning the account holder has a loan balance, even if small, from the bank.

Earlier this year, The Telegraph published its “worst offender” index, listing banks that charged the highest overdraft fees for their customers.

Santander was one of the top offenders, with an unarranged overdraft fee of £6 per day capped at £95 per month. On arranged overdrafts of up to £2,000, Santander charged daily fees of one pound per day; rising to £3 per day for overdrafts of £3,000 and above.

Other banks were similarly expensive. Borrowing money on overdraft from Halifax could result in charges of up to £3 per day, according to the July 2017 article. Unarranged overdrafts incurred a whopping £5 per day fee, capped at a maximum of £100 in overdraft fees per month.

RBS and NatWest also charged heavy unarranged overdraft fees, with an £8 per day fee limited to a total of £80 per month.

With as much as £100 in monthly overdraft fees from many bank accounts, it’s been suggested that borrowing money through short-term loans could be a more affordable option for people in need of quick access to cash.

The numbers seem to agree. An August 2017 article in The Guardian calculated that many of the most widely used bank accounts in the UK charged APR rates of up to 52%, making them more expensive — in certain cases, depending on borrowing habits — than payday loans.

Banks, to their credit, appear to be changing their overdraft fee structures in an attempt to make borrowing less expensive for customers. However, many have admitted that as much as 10% of account holders could end up paying more for overdrafts under the new fees.

Despite public warnings about short-term loans, it turns out that overdrafts — even if used rarely and responsibly — could be a far bigger cost for many British bank account holders.

For example, a loan of £300 over 3 months from a short-term loan provider such as Mr Lender, results in a total repayable of £444.00 (£300 capital and £144.00 interest*) at an interest rate of 0.8% per day on outstanding capital.

The same amount borrowed via an unarranged overdraft could result in £300 in fees through a high street bank using many of the fee structures listed above.

Public perception of borrowing money — and the true costs of borrowing money — isn’t always in sync with financial reality. For years, borrowing from the bank has been viewed as a safe, cheap way to access finance; borrowing from a short-term lender has been viewed as the opposite.

The reality, however, is that the best loan for your personal circumstances may not come from the source that you first think of. Study and compare interest rates and fees and you could find that borrowing money via short-term loans is more cost effective than using your bank overdraft.

Source: News Anyway