Payday loans: everything you need to know
Short-term, high-interest loans, also known as payday loans, are a bone of contention in the financial industry. They are often a last resort for people who are unable to get credit on better terms, but some people can also get them when they only need to borrow a small amount or need money. money in their bank account very quickly. They have been the subject of court rulings in the past, with the largest payday loan service, Wonga, going into administration when it had to reimburse clients because it did not make the terms sufficiently clear. . There are now a lot more regulations for short-term lenders, and they need to spell out how much you will end up paying back. It’s also now more common for repayments to be spread over several months, rather than the full amount taken from your bank account when you get paid.
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These types of loans are a very expensive form of borrowing, with interest rates (APRs) above 500%. When you compare that to the (still high) example of 40% APR for overdraft, you start to see how high that number really is. A lender gives the example of £ 480 borrowed over nine months, and the amount owed is £ 959.04 – almost double. On top of that, they can be frowned upon by mortgage lenders and make borrowing more difficult in the future.
If you are considering getting a payday loan, it is worth considering your other option. If you’re already on it, here’s what to do to avoid any issues:
Make your payments on time
Defaulting on a payday loan can lead to increased fees and increased financial stress, so missing payments should not be taken lightly. Make sure you know your payment schedule and can leave enough money in your account to cover refunds. Better yet, if you can save to pay off the loan sooner, it’s worth seeing if you can negotiate an early payment with reduced interest.
Take action if the going gets tough
If you think you won’t be able to make your repayments, or if your circumstances change and you are short, don’t waste time taking action. If you have a friend or family member who could help you in the short term, this is one of those situations where it may be a good idea to ask for help. Otherwise, you’ll need to let your lender know and see if you can renegotiate your payment terms. If the thought gives you a cold sweat, charities like StepChange and CAP can walk you through the process, or even negotiate on your behalf to make things more affordable and take the pressure off a bit.
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Don’t let them get away with bad behavior
Every lender has a duty to provide you with clear, quality customer service and to be upfront about the terms of payment. If there have been communication or service issues, or if you think your loan has been mis-sold – that is, you could never have afforded it, or if the terms didn’t were unclear – you can complain to the Financial Ombudsman Service. This is a free service that determines whether a lender has acted fairly or not, and you can sometimes get compensation if your loan was not processed properly.
You have the right to a breathing space
Under new regulations put in place by the government, you can get a 60-day respite from your lender’s lawsuits if you have debt issues, including a freeze on interest or fees. This can give you time to stop panicking, collect your thoughts, and see what help is available to you. You will need to access it through a registered debt counselor, charity, or mental health professional if your debt has caused a mental health crisis. In the latter case, your breathing time lasts as long as your seizure period, plus 30 days.
Payday loans are usually not the best way to borrow and are one of the easiest ways to make debt a problem if not managed carefully. But if you already have one and are worried about making repayments – or how much it will cost you – options are open to you, then don’t despair.
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