Stuck in a hole leading up to pay day?
This is a common problem and for anyone without an overdraft can be a tricky one to overcome.
As anyone with an ‘iffy’ financial history will know, turning to your bank for an overdraft is highly unlikely to result in a positive answer and trying to obtain a personal loan is likely to be equally unfruitful.
A number of short-term options have been designed specifically to bridge this borrowing gap and despite the constant stream of negative publicity surrounding payday finance in particular, this option has never been more popular than right now.
Why people fall into the payday trap
Lightning-fast turnarounds and no red tape to often lead borrowers to think they offer the perfect option, however questionable lending practices ensure that caution must be exercised.
They can be very expensive and have caused many people serious financial problems, but there are other options.
Below, we identify four of the most common of the ‘questionable’ lending practices currently employed.
1. Payday Lenders Love a Rollover
In National Lottery terms, a rollover is always a good thing. In payday lending terms, a rollover can lead to a very slippery slope.
If you find you can’t repay the the sum of money that you have borrowed and cover your essential outgoings, payday lenders will fall over themselves to offer an extension (also called a rollover). This means that you will be liable for much more in interest and other charges, making it even harder to clear your debt.
If you do not have the money to cover the repayments in your account, this will inevitably lead to either missing the payment and incurring a fee or exceeding your overdraft limit and having to pay bank charges.
2. APR’s can far exceed the figures quoted!
Many people see a relevant advert and believe that it is a forgone conclusion that the quoted APR will be available to them.
This is far from certain to be the case though.
The APR which is advertised is only obliged to be a ‘representative example’ of a typical cost.
This means that this interest rate only needs to be available to 51% of customers who submit an application and can often result in APRs far exceeding the initial figure quoted.
– A recent BBC report highlighted plans for a cap on the amount that payday lenders can charge their customers have been announced by the City regulator.
Payday lending rates should be capped at 0.8% a day of the amount borrowed, said the Financial Conduct Authority (FCA).
3. They do not tell you about the 14 day cooling-off period!
Payday lenders do not highlight the fact that all borrowers have the ability to withdraw from the agreement at any time within the first 14 days assuming they repay any interest that may have been accrued.
For more on this please check out the following Money Advice Service article – 5 Things Your Need To Know About Payday Loans