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Conflicting reports lead to short term loan confusion

Mar 07, 2014 Philip Burgess

No matter the topic at hand, it often seems as if everyone has an opinion. Take something like the current education system - even pensioners who don't have children or grandchildren and wouldn't be affected by any widespread changes in curricula probably have ideas on how they believe the British school system should be run.

While everyone is certainly entitled to their opinion and has the right to express it in a safe manner, when a lot of information and feelings are being publicized, the facts can get lost in the shuffle.

This might be what is currently happening in the short term lending realm. Over the past few years, news reports have been full of stories about the nation's leaders claiming that these alternative finance products are ruining the economy and taking a massive toll on household finances. But again, that's just the opinion of some critics. How about the people who took out these loans when banks couldn't help during the global recession - when do they get their chance to explain the benefits of the products in a fair forum?

In fact, a number of reports released lately from the financial industry present conflicting facts. So, which ones should consumers believe?

Are loans being paid in time, or are people struggling?
One report revealed that the majority of people who take out short term loans face no problems. According to the Press Association, research conducted by the Competition Commission noted that around 65 percent of loans are repaid either on time or early.

This signifies that consumers knew what was required for them regarding repayment thanks to lender education and met these responsibilities head-on. Having positive experiences like this means great things for the industry in the future.

That being said, charity StepChange recently presented a different picture, according to The Independent. Its report claimed that thousands faced short term lending problems in 2013, a marked increase from 2012 numbers. However, the source reported that StepChange leaders took the findings of the research a little too far, claiming that these products are a direct cause of sadness and financial damage across the nation.

What they didn't state, though, was the fact that these were largely the only economic products available when times got tough during the global recession that kicked off in 2008. They certainly didn't cause sad or upset feelings then - quite the opposite in fact.

StepChange, then, is calling on the regulator that will gain power over the sector in the spring, the Financial Conduct Authority, to take a deeper look at the industry and make moves to restrict short term lenders' actions. But what if, as supporters and leaders like the Competition Commission suspect, the body finds that the products have been helpful?

Take everything with a grain of salt
The fact of the matter is, every individual is different, so they're going to have varying experiences with alternative credit products. Some people won't have any trouble at all paying off loans, while other might struggle a little and not expressly enjoy their experience.

The best thing a consumer can do is probably to take the advice of individuals they know who have explored this option in the past. Sometimes "facts" and "figures" can be skewed by experts looking to promote an agenda, so getting the full picture from a trusted acquaintance might do the trick.

This could be great motivation for lenders to invest in word-of-mouth marketing methods and work to hone their customer service strategies. Going on the past alone, however, testimonials from satisfied customers should prove very beneficial for leaders in this sector well into the future.