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Why Payday Loans Were Capped

Why Payday Loans Were Capped

Until the FCA (Financial Conduct Authority) stepped in at the beginning of 2015, there was no cap on the fees and interest associated with the high-cost loans known as Payday Loans. It was at that point that the FCA capped the interest and fees at 0.8% and capped the total payback amount for any loan at double the amount of the original loan. It goes without saying that this unceremonious capping by FCA points was welcomed by all but the payday loan companies.

A Vulnerable Demographic, a Destructive Cycle

The “hook” for a payday loan is the offer of quick cash when the borrower is in a jam, and that cash is contingent on the proof of a regular paycheck, which is intended as security against the loan. The catch with these loans has been the high interest rates that have historically been charged to them, often rendering the borrower incapable of getting out of debt. The loans build interest and roll over and grow rather than shrink as the borrower struggles to pay them back.

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The most common cycle seen with payday borrowers has been a need to take out another short-term loan in order to make payment on the original loan and its interest, incurring yet another layer of fees and interest. This cycle could continue indefinitely, resulting in circumstances as extreme as bankruptcy.

Part of the problem with the uncapped interest rates came in the form of borrowers who felt they had no other options but to opt for payday loans—in other words, a vulnerable target demographic. Although these high-interest and short-term loans may not make financial “sense” (paying a large sum in order to have money a little sooner), many people find themselves in situations where the issue of “sooner” is paramount, trumping the other considerations that might have come into play in less desperate circumstances.

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Under the old system, a borrower might end up owing amounts exponentially greater than the amount originally borrowed, continually taking out more and more to cover the ever-increasing amounts that come due with their ever-accruing interest.

A Cap to the Problem

The FCA took note of this unmanageable cycle, and took action because it left consumers without any viable solution to quickly mounting debt. The FCA’s Christopher Woolard noted that “for those people taking out payday loans, they should be able to borrow more cheaply” with the new regulations in place.

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The new regulation was two-fold, including not only a numerical limit to the rate of interest that could be applied to this type of loan, but also a stricter set of regulations on how often a loan could be “rolled over” and continue to accumulate interest charges. At the end of the day, a borrower who is unable to repay the loan immediately can keep accruing interest, but only until the total amount owed reaches the equivalent of twice the originally borrowed amount.

Where a loan of one hundred could previously balloon to a debt of hundreds or even into the thousands, that same loan today cannot overreach the mark of two hundred–even with interest added on a defaulted loan.

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The FCA’s chief executive, Martin Wheatley, observed with some satisfaction that “Anyone who gets into difficulty and is unable to pay back on time, will not see the interest and fees on their loan spiral out of control,” meaning that “No consumer will ever owe more than double the original loan amount.” It is the very foundation of the new regulation, that not only will ensure that the interest owed doesn’t spiral out of control, but it will also make sure the total amount accrued will be limited to a manageable amount.

Additionally, the new regulations keep some people from taking out loans who have no hope of paying them back, thus setting off a downward spiral for the borrower in question.

The old tendency of payday loans to spiral out of control has been contained by the new cap and regulations.

More by this author

Tanvir Zafar

The founder of ISU Technologies, passionate in writing about entrepreneurship, work and technology.

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Published on November 8, 2018

How to Answer the Tough Question: What are Your Salary Requirements?

How to Answer the Tough Question: What are Your Salary Requirements?

After a few months of hard work and dozens of phone calls later, you finally land a job opportunity.

But then, you’re asked about your salary requirements and your mind goes blank. So, you offer a lower salary believing this will increase your odds at getting hired.

Unfortunately, this is the wrong approach.

Your salary requirements can make or break your odds at getting hired. But only if you’re not prepared.

Ask for a salary too high with no room for negotiation and your potential employer will not be able to afford you. Aim too low and employers will perceive as you offering low value. The trick is to aim as high as possible while keeping both parties feel happy.

Of course, you can’t command a high price without bringing value.

The good news is that learning how to be a high-value employee is possible. You have to work on the right tasks to grow in the right areas. Here are a few tactics to negotiate your salary requirements with confidence.

1. Hack time to accomplish more than most

Do you want to get paid well for your hard work? Of course you do. I hate to break it to you, but so do most people.

With so much competition, this won’t be an easy task to achieve. That’s why you need to become a pro at time management.

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Do you know how much free time you have? Not the free time during your lunch break or after you’ve finished working at your day job. Rather, the free time when you’re looking at your phone or watching your favorite TV show.

Data from 2017 shows that Americans spend roughly 3 hours watching TV. This is time poorly spent if you’re not happy with your current lifestyle. Instead, focus on working on your goals whenever you have free time.

For example, if your commute to/from work is 1 hour, listen to an educational Podcast. If your lunch break is 30 minutes, read for 10 to 15 minutes. And if you have a busy life with only 30–60 minutes to spare after work, use this time to work on your personal goals.

Create a morning routine that will set you up for success every day. Start waking up 1 to 2 hours earlier to have more time to work on your most important tasks. Use tools like ATracker to break down which activities you’re spending the most time in.

It won’t be easy to analyze your entire day, so set boundaries. For example, if you have 4 hours of free time each day, spend at least 2 of these hours working on important tasks.

2. Set your own boundaries

Having a successful career isn’t always about the money. According to Gallup, about 70% of employees aren’t satisfied with their current jobs.[1]

Earning more money isn’t a bad thing, but choosing a higher salary over the traits that are the most important to you is. For example, if you enjoy spending time with your family, reject job offers requiring a lot of travel.

Here are some important traits to consider:

  • Work and life balance – The last thing you’d want is a job that forces you to work 60+ hours each week. Unless this is the type of environment you’d want. Understand how your potential employer emphasizes work/life balance.
  • Self-development opportunities – Having the option to grow within your company is important. Once you learn how to do your tasks well, you’ll start becoming less engaged. Choose a company that encourages employee growth.
  • Company culture – The stereotypical cubicle job where one feels miserable doesn’t have to be your fate. Not all companies are equal in culture. Take, for example, Google, who invests heavily in keeping their employees happy.[2]

These are some of the most important traits to look for in a company, but there are others. Make it your mission to rank which traits are important to you. This way you’ll stop applying to the wrong companies and stay focused on what matters to you more.

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3. Continuously invest in yourself

Investing in yourself is the best investment you can make. Cliche I know, but true nonetheless.

You’ll grow as a person and gain confidence with the value you’ll be able to bring to others. Investing in yourself doesn’t have to be expensive. For example, you can read books to expand your knowledge in different fields.

Don’t get stuck into the habit of reading without a purpose. Instead, choose books that will help you expand in a field you’re looking to grow. At the same time, don’t limit yourself to reading books in one subject–create a healthy balance.

Podcasts are also a great medium to learn new subjects from experts in different fields. The best part is they’re free and you can consume them on your commute to/from work.

Paid education makes sense if you have little to no debt. If you decide to go back to school, be sure to apply for scholarships and grants to have the least amount of debt. Regardless of which route you take to make it a habit to grow every day.

It won’t be easy, but this will work to your advantage. Most people won’t spend most of their free time investing in themselves. This will allow you to grow faster than most, and stand out from your competition.

4. Document the value you bring

Resumes are a common way companies filter employees through the hiring process. Here’s the big secret: It’s not the only way you can showcase your skills.

To request for a higher salary than most, you have to do what most are unwilling to do. Since you’re already investing in yourself, make it a habit to showcase your skills online.

A great way to do this is to create your own website. Pick your first and last name as your domain name. If this domain is already taken, get creative and choose one that makes sense.

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Here are some ideas:

  • joesmith.com
  • joeasmith.com
  • joesmithprojects.com

Nowadays, building a website is easy. Once you have your website setup, begin producing content. For example, if you a developer you can post the applications you’re building.

During your interviews, you’ll have an online reference to showcase your accomplishments. You can use your accomplishments to justify your salary requirements. Since most people don’t do this, you’ll have a higher chance of employers accepting your offer

5. Hide your salary requirements

Avoid giving you salary requirements early in the interview process.

But if you get asked early, deflect this question in a non-defensive manner. Explain to the employer that you’d like to understand your role better first. They’ll most likely agree with you; but if they don’t, give them a range.

The truth is great employers are more concerned about your skills and the value you bring to the company. They understand that a great employee is an investment, able to earn them more than their salary.

Remember that a job interview isn’t only for the employer, it’s also for you. If the employer is more interested in your salary requirements, this may not be a good sign. Use this question to gauge if the company you’re interviewing is worth working for.

6. Do just enough research

Research average salary compensation in your industry, then wing it.

Use tools like Glassdoor to research the average salary compensation for your industry. Then leverage LinkedIn’s company data that’s provided with its Pro membership. You can view a company’s employee growth and the total number of job openings.

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Use this information to make informed decisions when deciding on your salary requirements. But don’t limit yourself to the average salary range. Companies will usually pay you more for the value you have.

Big companies will often pay more than smaller ones.[3] Whatever your desired salary amount is, always ask for a higher amount. Employers will often reject your initial offer. In fact, offer a salary range that’ll give you and your employer enough room to negotiate.

7. Get compensated by your value

Asking for the salary you deserve is an art. On one end, you have to constantly invest in yourself to offer massive value. But this isn’t enough. You also have to become a great negotiator.

Imagine requesting a high salary and because you bring a lot of value, employers are willing to pay you this. Wouldn’t this be amazing?

Most settle for average because they’re not confident with what they have to offer. Most don’t invest in themselves because they’re not dedicated enough. But not you.

You know you deserve to get paid well, and you’re willing to put in the work. Yet, you won’t sacrifice your most important values over a higher salary.

The bottom line

You’ve got what it takes to succeed in your career. Invest in yourself, learn how to negotiate, and do research. The next time you’re asked about your salary requirements, you won’t fumble.

You’ll showcase your skills with confidence and get the salary you deserve. What’s holding you back now?

Featured photo credit: LinkedIn Sales Navigator via unsplash.com

Reference

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