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There always seems to be a large amount of controversy surrounding Payday Loans. With high interest rates, quick repayment time and easy availability, Payday Loans can often be the downfall of many people in debt.
What is a Payday Loan?A Payday Loan is a loan that will pay you a sum of money to essentially cover your outgoings until your next payday. These loans can range from £50 to over £1,000 depending on your needs. You will then be expected to pay this sum of money back on your next payday. The interest rates are famously very high on these types of loans so it is always important that if you do take out a Payday Loan that you repay it back as soon as possible.
What are the advantages to a Payday Loan?If you come up against an unexpected item of expenditure and you have a poor credit rating then you may feel that a Payday Loan may be the only option for you. A Payday Loan can work on a short term basis, meaning that as long as you pay it back on your next payday then you won’t pay too much interest. For example if you borrow £100 and pay it back on your next payday then you will pay around £27 in interest, this is based on a typical interest rate of around 20%
What are the disadvantages to a Payday Loan?Although there are a few advantages to Payday Loans, there are also disadvantages, when borrowing money via a Payday Loan they are designed to be repaid fairly quickly. If for whatever reason you find yourself unable to repay the full amount then you could be left with higher interest charges. For example if you were to borrow £100 and pay this back within 34 days of taking out the loan, you would pay around £41.00 in interest on top of the £100 to pay the original loan amount. Some people find themselves in a vicious cycle with Payday Loans, meaning that as they pay off one Payday Loan they need another to get them through the month, which leads them to get another loan to pay off the first one and so on…
How do I avoid Payday Loans?As easy as they are to obtain, if you can avoid them then that is always the best option! In my experience people tend to get a Payday Loan to cover unexpected items of expenditure so in order to avoid this it is always best to save a little each month to put aside. This way when these matters do arise you have some savings to help you out. If you are in a plan already and you are struggling with repayments, then please speak to your case officer as they will be able to assist you in reviewing you’re I&E without you having to take drastic actions. If you would like to speak to one of our debt specialists about a DMP then please call 0800 316 1833.
This article was checked and deemed to be correct as at the above publication date, but please be aware that some things may have changed between then and now. So please don't rely on any of this information as a statement of fact, especially if the article was published some time ago.
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