Payday loans have long been a topic of debate. Designed to be a stopgap between paydays, they’re a risky, quick-fix form of lending that are widely advertised, highly accessible and make it all too easy to fall into financial bother.
In most cases, money experts will recommend against taking out payday loan debt at all. If you’re already considering taking out a payday loan, you may be in a financially vulnerable position – and if that’s the case, things can quickly go from bad to worse.
If you do opt to take out a payday loan, it’s essential that you pay it back promptly to avoid charges and prevent interest mounting up. Used sensibly, it can be a way to get your hands on some money to tide you over if there’s an emergency. Used recklessly, it’s a recipe for disaster.
The dangers of payday loan debt
A payday loan can be tempting when you’re strapped for cash and payday is further away than you’d like. But if you can’t keep on top of repayments, it will only cause you problems and can lead to you falling into a vicious cycle of debt.
The main dangers linked with payday loans are:
- Interest rates– Payday loan companies are well known for charging the highest interest rates possible. Not only that, but if you can’t pay back the loan in the agreed timeframe, it can lead to penalties and more fees being piled on.
Thankfully, with new laws in place to control unruly loan companies, these costs have been brought down slightly. Interest rates on payday loans have now been capped at 0.8% per day and the borrower will never pay more than double the amount they borrow.
- Short repayment periods – Although there are some companies who will give you a few months to repay your payday loan, these are usually an exception to the rule. Normally what will happen is that you will need to pay back the loan in full at the end of the month or on your next payday.
It’s often the small print that catches people out when it comes to payday loans, and it isn’t always easy to meet the deadlines you’re given. It can become a cycle of needing more loans to pay off the ones you already have, and not keeping up with your payments will lead to being charged fees and penalties that will only add to your problems.
Direct access to your bank account – In many cases, when you apply for a payday loan online, you’ll be asked to give the company access to your bank account for payments. What many people discover later is that the company is taking payments from their account when they aren’t due.
In some cases, your bank information may be shared with hundreds of other companies and they may attempt to take hidden fees straight from your bank account.
We’d always advise avoiding payday loans. It’s far better to explore other, less risky options first, like tightening your belt for a month, or borrowing from a close friend or family member.
Payday loans can cause significant damage to your finances and wreak havoc on your credit score if you lose control of repayments.
It can also be highly challenging to get any relief from paying them off. If the loan company hasn’t broken the terms of your contract, your chances of having any debts forgiven are slim. As such, the best course of action is to avoid the temptation of payday loan debt altogether.
If you’ve found yourself in over your head with a payday loan company and you need help or advice, give us a call today, on 0808 253 3288. Our friendly advisers are on hand to help work through your debt problems and are trained to give you the best advice for your situation.