The popularity of payday lenders such as Wonga in the UK was skyrocketing until the FCA popped the payday loan industry balloon. More and more people were using these services to get them from paycheck to paycheck and provide them with emergency funds in their greatest time of need. In the UK about 1.6 million payday loans have been provided to a total value of £2.5 billion.
Are Payday Loan providers no more due to changes by the FCA?
The industry is dominated by only a few players like Wonga who have historically charged interest in excess of 6000% APR! The FCA proposes to cap this at 0.8% a day, drastically reducing the profit margin for the current payday lenders.
The Payday loans impact on your credit history is more negative than good.
Many of the UK credit providers offer up these loans without using a credit reference agency. Some use one of the agencies but not all of them (for example Wonga does not share details with Equifax). Some do not share any details at all, which does not impact your credit history.
This means a very inconsistent impact of payday loans on your credit history.
We reported previously that just the presence of a payday loan on your credit history was stopping lenders from providing mortgages for example to individuals that had everything else in order. Of course if you do not pay one of these loans back on time (and you only have 30 days often) and this is shared with a credit reference agency (for example a default) these remain on your credit report for 6 years.
Wonga is writing off 330,000 payday loans will this improve credit scores of those affected?
The challenge right now is what to do with that credit history. If a loan is written off so a consumer does not have to repay it, does that mean that the credit history related to that loan should be erased too? The credit reference agencies are reviewing this now.
In summary avoid payday loans wherever possible…
Have you had experience of using payday loans good or bad? Leave a comment below or post any questions you might have in our forum.