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Debunking some harmful short term loan myths

Dec 16, 2013 Simon Williams

The short term lending industry is easily one of the most misunderstood in existence. While the media tells people one thing - that those in the sector don't have consumers' best interests at heart and will serve to drive them into debt - proven history tells another story. After all, which companies did individuals turn to when high street banks and other traditional lending outfits shut their doors on anyone without a perfect consumer credit score during the global recession?

It was the alternative finance industry that was the only sphere exerting itself to provide money to individuals in the United Kingdom who had trouble making ends meet after surprise expenses cropped up during these years.

Despite all of the help short term lenders gave the general public when they needed it most, damaging myths surrounding the sector still abound. People need to hear the whole story, or else lenders won't get a fair chance and individuals will remain unaware of some of the companies that can help them most when times are tough.

Myth: You won't be able to get a mortgage
One of the most harmful prevailing rumours with no basis in truth is the idea that after taking out short term loans, consumers will either no longer be considered eligible by mortgage lenders or will be seen as overly high-risk and face massive interest charges.

The Daily Mail said the critics of the sector have harped on this myth, though there is no specific causal relationship between taking out a short term loan and being denied a mortgage. In fact, a spokeswoman from Halifax Building Society told the newspaper that brokers treat short term loans as they would any other type of credit line, from credit cards to traditional personal loans. This means that, as long as the sums are paid back on time, consumers should have no issue.

In fact, the expert told the Daily Mail that because short term loans tend to be taken out for very small amounts of time, they might not be considered in a mortgage decision at all. Plus, London and Country Mortgages Associated Director David Hollingworth told the news outlet that if someone is not given a mortgage after taking out such loans, it's likely because there are other factors at play as well.

Myth: Lenders only target the vulnerable
While the mortgage rumour can definitely be damaging, many short term lenders will be more up in arms about the claim that some critics who seem to have vendettas against the industry like to rely on to fuel arguments: The sector targets those who are vulnerable and can't pay the sum back.

The fact is that this is extremely counterintuitive for short term lenders - if they only target the most vulnerable of consumers, sure, they'll have increased foot traffic, but they'll also lose money when people can pay loans back. They might get the amounts back after some time, and maybe after hiring debt collectors, but that's still no guarantee.

A separate article published by The Daily Mail cited a recent report issued by lender Peachy, which revealed that Peachy's customers tend to make between £17,000 and £31,000 per year, a range that cuts a wide swath. The newspaper reported that this may mean the borrowers are on the lower end of the salary scale, which sheds a bad light on the industry.

That being said, when reports like this emerge, consumers have to realize that this trend is only applicable to one of the many reputable short term lenders out there. Moreover, consider the other implications: while members of the low-income demographic might represent a "vulnerable" sect, they're also among the least likely to be helped by banks when times are tough. So, if no one will step forward to help them, why not short term lenders?