Short-term, high-interest loans, also known as payday loans, are a bone of contention in the finance industry. They are often a last resort for people who cannot get credit on better terms, but people can also take them out when they only need to borrow a small amount or need cash very quickly. your bank account. They have been the subject of court rulings in the past, with the largest payday loan service, Wonga, entering administration when it had to reimburse its clients because it did not specify the terms of the loan. sufficiently clear. There are now a lot more regulations for short term lenders, and they need to spell out how much you will end up paying back. It’s also more common for refunds to be spread over several months, rather than the full amount collected from your bank account when you get paid.
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These types of loans are a very expensive form of borrowing, with interest rates (APRs) above 500%. When you compare that to the (still high) example of the 40% APR for an overdraft, you start to see how high that number really is. A lender gives the example of £ 480 borrowed over nine months, and the amount owed is £ 959.04 – almost double. On top of that, they can be severely frowned upon by mortgage lenders and make borrowing more difficult in the future.
If you are considering getting a payday loan, it is worth looking at your other option – there is a wealth of information on zero and low percentage credit cards, overdrafts, credit unions, and credit transfers. money on moneysavingexpert.com. If you are already one, here’s how to do it to avoid any issues:
Make your payments on time
Defaulting on a payday loan can lead to increased fees and increased financial stress, so missed payments should not be taken lightly. Make sure you know your payment schedule and are able to leave enough cash in your account to cover repayments. Better yet, if you can save to pay off the loan sooner, it’s worth seeing if you can negotiate a quick settlement with reduced interest.
Take action if the going gets tough
If you think you won’t be able to make your repayments, or your circumstances change and you’re short, don’t waste time taking action. If you have a friend or family member who could help you in the short term, this is one of those situations where it might be a good idea to ask for help. Otherwise, you’ll need to let your lender know and see if you can renegotiate your payment terms. If the thought of it gives you a cold sweat, charities like StepChange and CAP can walk you through the process, or even negotiate on your behalf to make things more affordable and take the pressure off a bit.
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Don’t let them get away with bad behavior
Every lender has a duty to provide you with good, clear customer service and to be upfront about payment terms. If there have been communication or service issues, or if you think your loan has been mis-sold – that is, you never could have afforded it, or if the terms didn’t were unclear – you can complain to the Financial Ombudsman Service. This is a free service that determines whether or not a lender has acted fairly, and you can sometimes get compensation if your loan was not processed properly.
You have the right to breathe space
Under new regulations introduced by the government, you can get a 60-day stay after legal action from your lender if you have a debt problem, including a freeze on interest or fees. This can give you time to stop panicking, collect your thoughts, and see what help is available to you. You will need to access it through a registered debt counselor, charity, or mental health professional if your debt has caused a mental health crisis. In the latter case, your breathing time lasts as long as your seizure period, plus 30 days.
Payday loans are usually not the best way to borrow and are one of the easiest ways to make debt a problem if not handled carefully. But if you already have one and are worried about making refunds – or how much it will cost you – there are options available to you, then don’t despair.
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