In todayís climate it is easy to get into financial difficulties and have debts mounting up quicker than you can manage.
This might compel you into taking some drastic action in order to acquire the money you need; this is where payday loans come in. Payday loans are fixed period, high interest loans that are taken out by people who are looking for quick cash in a short space of time. They will often make statements about how they donít care about poor credit rating and guarantee approval in order to entice customers. Many also guarantee cash within the same day and this can be supremely attractive to people who are looking for the short term cash influx to relieve their financial difficulties.
However it is important to remember that these are only a short fix solution to your debt problems and can often be more trouble than their merits are worth. Remember that there are alternate debt solutions that can be taken if you need money quickly and never take out more than one payday loan if you really have to. Borrowing from one payday loan to pay off another can lead to a relentless and continuous spiral of debt that will become immeasurably difficult to get out of.
Earlier this year the Guardian reported there were 20,013 calls to the national debtline about liabilities acquired through payday loans in 2012. This tendency to amount debt problems from payday loan borrowing is unsurprising when you consider that the average interest charged is a monumental 25 pounds per 100 pound borrowed!
It is important that if you are considering getting one that you are well informed about them and understand the risks and dangers when getting involved with these companies.
This guide will give you a brief insight into the dangers of payday loans and what you should be aware of when considering taking one out.
Interest rates are incredibly high
The interest rates on all payday loans are supremely high and this means that the amount you have to pay back will be far higher than what you borrow in the first place. Leading companies such as Quick Quid, Payday UK both display APR rates of over 1500% whilst Wonga short term cash is as high as 5800%. To put this in perspective a £1000 loan from Quick Quid would cost you £1250 to repay within a month. This is actually higher than most credit card providers would ask you to pay over a whole year. It is advisable that you avoid payday loans but if you do decide that it is necessary to do so then make sure you can afford the repayments. Failure to do so on time can have a hugely damaging effect on your credit rating and will deprive you of peace of mind for the foreseeable future.
The late charges and interest are dangerous
As with all loans, failure to make your repayments on time will lead to payday loan companies adding a series of interest and late fees to your balance. This will be between £12-20 per missed payment though this will build up quickly if not addressed. It will also negatively impact your credit rating and will make your ability to acquire new money
in the future very difficult.
In an interview conducted with the Guardian, Lord Freud outlined the dangers of payday loans saying:
ìYou sign one of these CPAs and the payday lender dries your account the next day; the next day you are late, you pay the penalty, you can be overcharged, whateverî.
Some companies are frauds- be careful!
If you do decide to take a payday loan out then you should search the company up online and look at multiple reviews before you sign any agreement. Many companies include an application form on their page that doesnít ask for employment details but instead just asks for the bank details. They will promise loans to anyone even if they have been refused elsewhere and lure people in by making money seem obtainable within minutes. However, many of these are fraudulent websites are designed to attract people in this way and then scam people out of their money by charging a ëprocessing feeí for their loan. The form will tell a lender that they have been approved and will then ask them to consent to a processing fee before the money is put into their account. They will then take this money and not put the money in before losing contact with you. Retrieving this money is a highly difficult procedure and it will be hard to get money back if you have been tricked into consenting it away. Make sure you research and check out any payday loan companies you might potentially be borrowing from and see if they are bound to the Office of Fair trading before processing your application for a loan.
Can affect your ability to get a mortgage
Taking a payday loan out might also have an adverse effect on your ability to obtain a mortgage in the future. Certain companyís such as GE Home Lending and Kensington Mortgage have stated that they will not allow someone who has a history of taking a payday loan out on their file to get a mortgage. This is because taking a Payday Loan out is indicative of poor money management and this detracts some creditors from wanting to lend to you. So if you are someone who is prospectively looking to move house or purchase some property then it is advisable that you stay away from them as you might find yourself unable to get the mortgage required to do this.
You will be harassed by the phone
If you fail to make a repayment on time then you will be relentlessly called by a payday representative who will ask for the money. Even if you do pay back on time you might still get a number of calls because of administrative problems with your file.
The details you provide might also be passed on to a third party associate of the payday loan company and they will call you frequently as well harassing you with offers about new loans. This can happen up to 8 times a day and can be incredibly frustrating if it becomes a regular occurrence. Make sure that you tell to stop harassing you if this happens and if it continues contact the Office of Fair trading and complain to them directly about these peoples conduct.
Look for an alternate short term debt solution
If you are struggling financially and need a short term loan in order to cover your pressing debts then there are a number of alternate routes you can take in order to acquire the money. Look into getting an interest free loan or a 0% balance transfer credit card if you really need money quickly. Alternatively apply for an overdraft or try and sell some items of yours in order to acquire the money. Ultimately payday loans are far more trouble than they are worth. Taking one out simply leads you to having more debt than in the first place and attempts to pay them back can often lead to debt mounting to an unmanageable level. Do not take one out unless every option has been exhausted and if you do then make sure you can afford to repay it on time.
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