If you feel under pressure to pay all of your bills on the run up to payday, buying into the skillful advertising of payday lenders and turning to one of their products for a short period of time can easily seem like the idea solution.
However, before falling for the temptation, make sure that you are aware of the following:
1. They are extremely expensive!
No matter what the publicity says, although the APR and charges vary from lender to lender, they all share the same characteristic of being extremely expensive.
With one very high profile lender quoting a representative APR of over 5000%, it is probably not a surprise that they try to counter this fact by stating that APR is not the best way to measure short-term loans and quote alternatives like “1% per day” instead.
Whilst this may not sound too bad, falling behind on your payments can mean that in approximately 3 months, you would owe twice the amount that you borrowed and be accumulating charges for late payments.
2. They can damage future borrowing
At the end of 2013, a BBC Newsnight report claimed that:
“Two thirds of mortgage brokers say they have had a client turned down for a mortgage because of a payday loan in their past.”
Regardless of which lender you choose, the presence of a payday loan on your credit record will reflect poorly upon you in the eyes of future lenders. This renders making comparisons both a time consuming and pointless task.
For more on this story please check out the following BBC story – Payday loan ‘risk to mortgage applications’.
3. Very Easy to join the debt spiral
No matter how good a deal you believe that you have received, failure to make the scheduled repayments in full will nearly always result in long term damage to your finances and can easily lead to becoming trapped in a dangerous cycle where you are borrowing more money to repay rapidly accumulating debts.
If you find yourself in this position, the debt charity Step Change has drawn up a list of helpful tips to deal with the situation.
Click on the following link to access their guide – Help with payday loans