Do I need to give a reason for my application?

No, as long as you note that our loans are only suitable for emergency borrowing requirements. If longer term solutions are needed, there are other more suitable forms of credit available elsewhere.

As part of being a responsible lender we need to ensure you are given all the appropriate and relevant information before you make a borrowing decision. Contained in the information transfer we make it clear what our loan product has been designed for. Our loans have been designed for short-term cash flow emergencies. With that in mind detailing a specific reason is not a requirement as long as it is in keeping with the product design outlined above.

Product design

An integral part of any business and one that we invested a great deal of resources to get right first time. Our process started by reviewing the macroeconomic environment, what products were available to UK consumers (and what had been withdrawn) and what products did those individuals want. We began looking at the UK market in late 2008 and it was clear that the effects of the credit crunch were beginning to bite (excuse the pun). Given the accusation of unscrupulous lending and poor credit risk management being levelled at the bank it was easy for them to justify removing access to credit for some parts of their consumer base and restricting it for others. What did consumers want? Well looking at the products that were being withdrawn or limited it appeared to us to be the short-term and facility type products such as credit cards and overdrafts. Unsecured lending in general contracted sharply leaving many without any form of finance to smooth their cash flow. Given the increasing turbulence in the general economy at the time household cash flows became increasingly volatile and erratic making it a bit of a perfect storm for consumers.

This is the backdrop to our analysis of what product would fit the demand and how would that be delivered? That was the question our management team set about to answer and the single instalment payday loan was the obvious fit. Delivery needed to be fast, secure and convenient if it was to be a viable substitute to the products being withdrawn by traditional credit providers. The solution to this was to originate, process and deliver loans in an online environment. Advancements in technology coupled with an increasing acceptance of doing business provided fertile ground for growth. A successful test was followed by a soft launch in early 2009 before a full launch in April of the same year.

What is a secured and unsecured loan?

An important general concept when it comes to assessing the uses of a loan is to consider whether you have secured any assets to the repayment. For example, a common secured loan in the UK is a mortgage. This is a loan secured on the property you have purchased. Should you not be able to keep up repayments on the loan, the lender could look to seize your house as payment. This is why it is very important to understand all the details associated with your loan over and above the amount to repay, interest rate and term. Other common secured loans include auto loans and some types of business finance.

Borrow for responsible reasons

An unsecured loan is not backed by any security and therefore there is no immediate recourse to any of your assets should you not be able to pay back. Of course, the lender can apply to the courts for various remedies such as an attachment to earnings. However, they are not guaranteed to get that approved and will have to make the case that it is an appropriate course of action. Our loans are unsecured and have always been so. There are many reasons for this not least as a result of our design phase whereby one of the important stipulations was for speed and ease of application, process and funding. If we had to assess the suitability and value of an asset to back the loan then the whole process would take much longer.

What are some examples of appropriate use?

Our loans have been designed for when an emergency call on your finances crops up, which you had not planned for nor have immediate access to cash to cover.

Examples include:

  • Car breakdowns
  • School trips
  • Washing machine and appliance issues
  • Unexpected travel costs
  • Funeral costs
  • Waiting for work expenses to clear

What would be some inappropriate uses?

Obviously listing all uses that our loans were not destined for is not practical but essentially it would be borrowing for the long term and especially to refinance other forms of finance. For example, it would not be appropriate to use our loans to pay your credit card or store card bill nor would it be wise to pay regular priority bills such as rent with them. Occasionally it may be unavoidable but the sustainability is questionable.

Why the high APR?

As we have written about previously, you can see that APR is a financial calculation based on borrowing for the whole year and compounding the interest repayments. Our loans are for one pay period which means they are never longer than say a month so to borrow for a year is impossible. Providing an APR on all financial promotions with appropriate triggers is a statutory requirement for all credit providers (with certain exceptions such as overdrafts etc.).