Why Don’t People like Payday Loans?
Whether you’ve seen an advert pop up on television or flying past on the tube, payday loans are seemingly everywhere.
To the untrained eye, it can seem like an easy deal: those strapped for cash can get a short term loan from a local lender and pay it back when they do have the money.
It seems to work like any other loan you might get from a bank or family and friends. But payday loans can have a darker side and many people don’t trust short term loans. In some instances, it’s hard to separate the fact from fiction.
So why don’t people like payday loans and are the stories you read online really to be trusted?
Paying back in the Short Term is Difficult
A payday loan is all about giving temporary relief when cash runs low. Most people generally take out a few hundred pounds to cover their bills. Some for a sudden, unexpected cost like a car breaking down or fixing a burst pipe.
Taking out loans however, can drop consumers into a vicious cycle. Which consists of borrowing money, spending it and then not having the money to pay it back and thus borrowing more.
Over half of payday loans are extended by people not being able to pay the money back to their provider. Which can end up increasing the amount they have to pay back over time. When not monitored correctly, the amount a consumer owes can skyrocket.
Economists call this a ‘vicious cycle of credit’, where the consumer cannot pay back their loan and so borrow more money in an attempt to pay the first loan.
In most situations, payday loan companies will lend money to anyone who needs it. Which can make it difficult for many borrowers with bad credit to pay back over time.
The Small Print
Remember those TV ads we mentioned at the beginning? All the top payday lenders who advertise on TV have fine print at the bottom of the screen where they talk about the particular terms and conditions.
One of the most discussed and disliked pieces of that is the mention of APR. APR – Annual Percentage Rate– essentially tells you how much interest you will have to pay back when you take out a short term loan with the company. For many, this figure is in the 1000s, far, far higher than any APR offered by a high street bank or building society.
This means that, ultimately, a customer would be paying back more than double what they borrowed. That figure will only increase if the loan is extended past one year.
Many companies in the UK have gotten in trouble with the law for advertising ‘quick and easy’ same-day payday loans. Having not specified the risks of taking out a loan and how much you’ll have to pay back in the long run.
Reading the small print is very important and you should explore your options for short-term loans before deciding to borrow money from one.
Payday Loans are not a Long Term Solution
Most people who take out payday loans are often doing so to cover things their savings cannot or because they’re unable to get a loan from a bank due to a bad credit rating.
If you can pay back the loan in the long term then it may be a solution for you. However, for many, it gets increasingly difficult to pay it back because you have no savings.
Whilst they can provide cash for a short term issue like your car breaking down. Borrowing money from them over the course of years can result in a huge bill for you.
Payday loan companies work like any bank- if you can’t pay the money back, they’ll take items used as collateral.
In the UK, where thousands of people have taken our short-term loans, many have fallen prey to predatory repayment techniques and end up borrowing more money than they could ever pay back.
Short-term loans are not right for everyone but can be a useful solution for those who need a quick injection of cash over a short period of time. Do your research before borrowing money- and always read the small print.