Same-day loans are small emergency loans aimed at subprime borrowers. Their name calls them because the approval is made the same day you put in a loan application. Various lenders have the provision of furnishing same-day loans for people with bad credit, but they charge high interest rates. These loans are not available from banks or mainstream lenders, which raises a question about their legitimacy.
Amid the availability of loan sharks, the risk of falling into a trap of exorbitant deals, notorious for plunging you into an abyss of debt, is ineluctable if caution is thrown into the wind. It is enjoined that you carefully check the loan and the provider is both genuine because, in any other scenario, you would not be able to make an affordability complaint against a lender. It was you who chose an unfavourable deal in the first place without researching and exploring other options.
Regarding the question of whether same-day loans in the UK are legal, the answer is yes. These small loans are also available from registered lenders, but they are subject to strict FCA regulations to protect consumers’ interests.
What are same-day loans?
Same-day loans are small emergency loans. When you come across unexpected expenses and have insufficient savings, you can consider applying for these loans. The maximum size of these loans is not more than £1,000, and they are required to be paid off in one fell swoop. Though the maximum borrowing limit is up to £1,000, on no account will a lender approve your application without assessing your repayment capacity. If they determine that your repayment capacity is insufficient, they will either restrict the loan amount or decline your application.
Same-day loans are high-interest loans because your credit score is poor, and the risk of default is also high as a result of a lump sum payment. The repayment length of these loans is not more than a month. The repayment length of these loans lasts for about 14 days or a month. Since these loans are not repaid in fixed instalments, chances are you might fall behind on payments.
Various types of short-term loans are known as same-day loans. These loans include, but are not limited to, payday loans, text loans, small loans, doorstep loans, and the like.
Key regulations for same-day loans
Same day loans are quite expensive. These loans have to be regulated in order to protect credulous borrowers.
FCA authorisation
All lenders providing same-day loans must be FCA authorised. Various loan sharks offer these loans to extort money from subprime borrowers who are refused elsewhere. No lender is authorised to provide these loans without being affiliated with the FCA. However, if you come across an unregistered lender providing these loans, you should always ignore them. It is enjoined that you never borrow money from such a lender.
It is always a borrower’s responsibility to borrow money from a registered lender. You should always try to do research to check the authenticity of a lender. If you find that a lender is not registered, never ever borrow money from them. Borrowing money from such a lender is your mistake. If you find a very expensive deal or you end up in a debt trap, you will not be in a position to complain against a lender.
Even though you borrow money from an unregistered lender, you are obligated to discharge your debt. If not, your lender may take you to court.
Interest-rate cap
Lenders are regulated to charge interest rates. Same-day loans are very expensive, and most lenders have taken advantage of high interest rates to make money. After several complaints by borrowers, the FCA investigated and found that lenders were mercilessly charging interest rates to make profits. And then, the FCA decided to put a cap on interest rates.
No lender is permitted to charge more than 0.8% interest per day on same-day loans. Bear in mind that it amounts to 292% annually. Interest rates and annual percentage rates are not the same. The latter includes interest rates and associated fees and charges. While the daily interest rate is 0.8%, you will actually pay a higher amount due to associated fees and charges. These charges also include default fees, which are capped at £15.
Fees vary by lender. It is recommended that you carefully research fees and related charges. You should always ensure that you borrow money from a lender who charges lower fees. The lower the APR, the better it is.
Affordability checks
Lenders must conduct thorough affordability checks to ensure that you can afford the payments. Though they are not obligated to run hard inquiries, which leave your credit points as they appear on your credit file, they must run soft inquiries. The impact of hard inquiries is temporary because your credit score will bounce back as soon as you pay off the debt.
Every registered lender is expected to conduct affordability checks to ensure that you will not face difficulty repaying your debts. Though lenders are supposed to run an affordability check, you cannot abdicate your responsibility to ensure that you can repay your debt. It is your obligation to ensure that you can repay the debt. If you borrow a higher amount of money, you will struggle to repay your debt. You cannot blame your lender for lending you more money than you can afford to repay.
FCA registration
Lenders must be registered with the FCA. At the time of borrowing money from a lender, you should carefully check whether they are registered with the FCA or not. You can get these details about registration from their website. A lender would certainly disclose their registration number on their website. If not, you should check it on the FCA Register.
If you do not find any registration details, they are an unregistered lender. Beware of such lenders. They could be loan sharks. They could extortionate money from you by charging exorbitant interest rates. If you fall behind on payments, the loan will continue to be rolled over. This will accumulate the size of the debt. Remember that you cannot make a complaint against an unregistered lender because it was your choice to borrow from them instead of a registered lender.
The final word
Same-day loans are quite expensive. Lenders charge higher interest rates because the risk of default is high, as they are required to be discharged in full. Furthermore, these loans are specifically designed for borrowers with subprime credit. This is why lenders charge high interest rates.
Same-day loans should be used only to meet small emergency expenses. Make sure that you borrow money only when the nature of the cost is unavoidable. While these loans are readily available, it is advisable to set aside some money. Additionally, continue to improve your credit score. A good credit rating will enable you to borrow money at lower interest rates down the line.
If your credit score is not perfect, you should consider other alternatives as well, such as a credit card. They might be cheaper than them.