Thanks to the uncertainty of the current economic climate, debt is become ever more prevalent within our society. It can be easy to fall behind with payments, and many people find themselves strapped for cash before the end of the month and their next wage.
A number of these individuals will turn to payday loans, an increasingly popular method of securing money quickly. These lenders lure in the unsuspecting with the promise of overlooking poor credit ratings and guaranteeing approval. For those desperate for capital, they seem like a godsend.
Don’t be deceived – payday loans tend to be more trouble than they’re worth. Here are just a few of the things you need to be aware of if you’re considering taking one out…
High Interest Rates
It’s not uncommon for APR rates on payday loans to top 1500 per cent, with some companies displaying rates as high as 5800 per cent. In real terms, this means that the amount of money you borrow from a payday loan company will be much lower than the amount you’re expected to pay back. If you loaned £1,000, for example, the sum you would need to repay would average around £1,250 in less than a month.
Should you fail to make a repayment on time, payday loans, like all loans, will charge you even more interest plus late fees. The total that this amounts to can snowball very quickly, until you find yourself indebted to the tune of tens of thousands of pounds. Debts as substantial as this can decimate your credit rating, which will have a devastating impact on future opportunities should you wish to borrow money again.
Fraud is worryingly prevalent in the payday loans market. Many people find themselves being charged a false ‘processing fee’, exacerbating their money troubles even further, or making unauthorised payments to online brokers without ever receiving an actual loan.
Damages Your Ability to Borrow Money in Future
If you have a history of borrowing money via payday loans, you may find that some creditors – in particular, mortgage lenders – are unwilling to lend to you. Certain companies, such as GE Home Lending and Kensington Mortgage, have publicly stated that their policy is not to lend to those who have such a history, as it indicates poor money management skills.
Your Details May Be Passed on to Third Parties
Many payday loan brokers posit themselves as lenders to entice you to hand your details over to them. However, it is common practice to pass these onto third parties, as Different Money discusses on their blog. These parties are known for making frequent calls, haranguing people to sign up for their services.
If you’re thinking of applying for a payday loan, don’t be caught unawares; make sure that you know all of the pitfalls, as well as the alternatives, before committing to anything.