Payday lenders can offer the perfect solution if you are looking for quick cash, however quick cash doesn’t always = smart cash.
Below we highlight some of the ways that a hasty decision can lead to long-term damage to your finances.
Below we have highlighted just two of the many issues which may you may find should you choose to explore this alternative type of finance:
1. It could potentially damage your chances of successfully submitting a future mortgage application?
At the end of 2013 a BBC Newsnight report claimed that two thirds of mortgage brokers had experienced one of their clients having a mortgage application rejected, directly because of the presence of a payday loan on their credit record.
This is explored further in the following BBC article:
Even if you have fully repaid the outstanding balance on time and in full, you may still have a problem in the future.
A recent report from the IPPR highlighted the fact that the most common use of payday loans is to pay for everyday expenses, such as groceries, gas, electric and water bills.
It is therefore little surprise that potential lenders will see the fact that someone has had to resort to using this frowned upon type of borrowing to pay essential bills as an accurate indication of someone living beyond their means.
For the full IPPR report, please check out the following report:
Mathew Lawrence, Research Fellow at IPPR (Institute for Public Policy Research), said:
“The fact that people are using payday loans to cover predictable expenses shows that it is not a financial planning problem they face but a problem of making ends meet. In a worrying new trend, young people are using payday loans to cover everyday expenses like their phone bills and rent, as well as their groceries and utility bills.”
Mathew Lawrence Research Fellow at IPPR
2. Failing to make repayments on time can lead to spiralling costs and charges
The consumer group Which? recently released findings indicating that payday lenders are trapping increasing numbers of consumers in a downward spiral of debt caused by exorbitant penalty charges.
25% found that they were hit with hidden charges such as high fees for reminder letters, and one in five (20%) were not able to make repayments on time.
33% of people were found to have experienced increased financial problems as a direct result of borrowing money from a payday lender with results being compounded by the fact that 57% of borrowers were encouraged to borrow additional money and 45% rolling over their loans at least once.
The following Telegraph article explores Which’s findings in greater depth.