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Ways to Improve Payday Loans

Written By On 16/09/2013

Liberal Democrat MP Rebecca Taylor has suggested that Britain should take a look at other countries around Europe on how they deal with payday loans.

The Euro MP for Yorkshire and Humber says that our European counterparts have put a cap on the interest rates that can be charged on short term loans and thinks the UK should do the same.

She says,

A number of European countries have restrictions on interest rates sometimes called a cap or a maximum rate. The level at which this maximum is set can vary tremendously...from twenty per cent in France, to four hundred per cent in Slovenia.

However, she makes it quite clear that she does not believe or want to see these types of loans banned as she believes they are needed. She added that if they were to be prohibited, 'desperate' people would feel forced to use 'illegal loan sharks'.

On another side of the coin many people are becoming confused whether it is better to take out a short term payday loan as opposed to a twelve month loan. They will probably find that the annual percentage rate (APR) to repay is shown at a lower rate for a longer term loan and automatically feel that this may be their best option.

However, APR's shown can generally be misleading. The rates for a one month loan is multiplied far greater as it needs to display an annual rate. But it is only designed as a very short term loan for no longer than a month.

A twelve month loan will always entail much more interest to pay back because the loan goes on for a lot longer period.

Richard Lloyd, executive director of Which? says

One-year loans should be treated with caution as they can be an extremely expensive way to borrow.