Since September, due to the soaring cost of living, the amount of payday loans issued has risen by roughly 55 percent.
For the majority of borrowers, they have nothing to live on until their next pay packet and significantly have no other way of borrowing.
Usually a short term option, payday loans are normally for a few hundred pounds lasting 30 days. The rates are approximately a shocking 1,350 percent APR.
For example, lender Payday UKs rates work out at an APR of 1,355 percent. That means people pay back 125 pounds for every 100 borrowed.
Early Payday loan in Windsor has the same rates; they lend a minimum of 120 pounds, costing 150 pounds. Costing 1000 pounds is the maximum loan of 800 pounds.
Cathy Neal at Which? Money says: “Paying 25 pounds to borrow 100 doesn’t sound too bad at first. But the problem is that people borrow more than this and the interest bill racks up.” she adds” Using a payday loan once is not the end of the world. But the likelihood is that it won’t be just for the one month. And a series of loans works out incredibly expensive. Unfortunately these companies are preying upon people who have nowhere else to turn.”
The sudden rise in the cost of living has drastically increased the amount of people taking out these loans. Head of loans at Moneysupermarket.com, Tim Moss says: “The rise in payday loans is astronomical and shows how difficult people find it to cope day to day. These loans are increasingly used to help those on a tight budget.”
An unauthorised overdraft can cost hundreds of pounds if you go over your limit, even by a small amount for a short time. This is when a payday loan may be a better deal.
However, you will be paying another months interest if you cannot pay off the loan on time. The interest mounts up extremely quickly and this is where people become even more in debt.
Moss says, “Payday loans can be useful as a short-term credit vehicle. They are a bit like taxis — convenient for short journeys but if you are going a long way, there are much cheaper ways to travel.”
He also says anyone looking for longer term credit “would be wiser to borrow the cash from family or friends or arrange an authorised overdraft with the bank”.
Shockingly, even if you have not repaid a previous debt some payday loan firms still
allow you to borrow more cash.
Steve Wilcox from Citizens Advice says: “Those turning to payday loans regularly need to reassess their spending. The loans are meant to be a last resort, so are fine as a one-off if you are perhaps faced with the need for emergency cash”. He adds“But they are a problem for people who defer repayments and con¬tinue to borrow more cash.”
Moss adds: “The best solution is to sit down and analyse everything you are spending your money on: Are there any potential savings you can make and is all of your spending essential? He continues“Then make contributions to a high-interest current account, so there is money regular available should you need it.”
Importantly, so there are no shocking surprises, know what the charges are.
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