What is a Payday Loan?
- It’s a credit with a maximum term of 30 days, where the borrower pays the loan’s
principal back from the next month’s salary.
- Compared to installment loans, the interest rates are usually significantly higher. In a mystery shopping performed by the European Commission in Ireland, Spain and Romania, the average interest rate for payday loans below EUR 180 was at 2.543%.
- Repayment is typically made at the end in a single baloon payment consisting of the loan amount, interest and fees.
What kind of problem do we have with Payday Lenders?
Non-bank providers of Payday Loans often do not perform any credit check on consumers. This is neither in their interest nor in the interest of market integrity. We therefore welcome the revision of the EU Consumer Credit Directive, which considerably extends the scope of the legislative act and makes creditworthiness assessments mandatory for Payday Loans as well.
What advice we give to all consumers?
The directive came into force on 19th of November 2023. It must be transposed into national law in the EU member states by 19th of November 2025. Afterwards it must be implemented by 19th of November 2026.
Watch out until then! Especially in case of Payday Lenders‘ websites emphasizing the speed and simplicity of their services.