Payday Loan Debt

Guide

Overview

Think of payday loans and quick, snappy adverts come to mind.

However, despite the slick marketing campaigns payday loans have always been considered to be controversial.

They often come with high interest rates, high late payment charges and short repayment terms that can all have a long-term negative impact your finances.

What is a payday loan and how does it work?

A payday loan is a short-term loan that is designed to tide you over until your next payday. They typically last for two weeks.

What is a payday loan?

Payday loans are short term loans designed to provide immediate financial relief.

The idea is that the loan repayment should be made before you get your next wage.

Advertised as quick and convenient by payday lenders it’s important never to forget that a payday loan comes at a cost.

The unsecured loan often comes with high interest, high APRs and hidden charges by the lender.

More often than not payday lending is the cause of people’s debt problem rather than the saviour. That’s why you should never take on payday loan debt unless you know you’ll be able to pay it back in full on time

However, this advertised convenience and ease comes with a cost.

Payday loans typically come with high-interest rates and often exceptionally high APRs.

You should never take a payday loan unless you know you will be able to repay the loan in full and on time.

How does a payday loan work?

The concept of a payday loan is simple. They are designed to offer support if you experience an unexpected cost from one payday to the next.

You borrow money from a payday loan lender and the money is paid directly into your account. You will be expected to repay the entity of the payday loan debt – including interest and additional charges – at the end of the month.

Payday loans come with high interest and charges attached, making falling into a never ending payday loan trap easier than you’d think.

Although you may only borrow a small amount, you should always be cautious when considering turning to payday lender. A payday loan could make your situation worse and lead to financial hardship if you’re unable to repay what you owe in time and in full.

How much does a payday loan cost?

The cost of payday loans have been capped by the Financial Conduct Authority (FCA).

It means that payday lenders are no longer able to charge high fees that could stop you from paying more than twice what you borrowed in the first place.

If you take out a 30-day loan you won’t pay more than £24 in fees and charges for every £100 borrowed.

The cap also applies the money you repay – the most you’ll be charged is £15 plus interest on the amount borrowed.

Can payday loan debt affect my credit rating?

Your credit rating won’t be damaged by a payday loan, permitting you repay the original loan in full and on time.

If you get a payday loan and don’t have enough money to make the monthly payments you will default and face the consequences of that.

However, according to credit reference agency Experian, there may be some exceptions to this rule.

Your credit file is a record of all of the debt you have borrowed, how long you are paying it for and your payment history. Lenders use this as a way of deciding your creditworthiness before lending you any money.

If a particular company views payday loan debt negatively – perhaps because they believe payday loan borrowers are less reliable – then having one on your credit history could go against you.

It’s also important to remember that any loan application, no matter the loan amount, can temporarily lower your credit rating due to the hard search and a new credit account being added to your file.

While payday loans might seem like a fast solution to an urgent problem, it’s always best to avoid them if possible.

What are the risks of payday loans?

There are risks associated with payday loans so it’s important to consider this before committing.

High interest rates

It’s no secret that payday loan lenders are known for charging sky high interest rates. If you don’t stay on top if what you owe you could also face additional charges and fees. This can mean paying more money than your original loan.

Thankfully, new regulation means that costs have been brought down slightly, with interest capped at 0.8% per day and will mean that you won’t pay more than double what you borrowed.

Short repayment

Payday loans are advertised as being a quick fix.

They’re designed to offer financial support when you’re faced with an unexpected expense, such as a broken boiler.

With that in mind, you’re more often than not expected to repay payday lenders your full loan amount by your next payday.

The short repayment schedule may not seem like an issue at first, however, if you’re already stretched financially that month and haven’t planned the extra money into your budget then it’s easy to miss the tight deadline.

Direct bank account access

When you apply for a payday loan the lender will often ask you to give access to your bank account. Not simply a direct debit, many payday lenders may take additional money from your bank or card issuer.

Payments like this are often to cover the cost of fees hidden in the small print of the loan agreement.

You should also be aware that your bank accounts may also be shared with a number of companies who might also attempt to take hidden fees from your account.

How we helped Paige

It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.

Paige , IVA Customer

Are payday loans worth it?

While payday loans might seem like a fast solution to an urgent problem, it’s always best to avoid them if possible.

Payday loan debt comes with risks that far outweigh the benefits of going through another lender.

If you’re not able to save money for a month or borrow from friends and family, you may consider low interest personal loans from a credit union or another reputable lender.

Payday loans can have long lasting damage on your finances – especially on your credit rating if you’re unable to stay to your repayment plan.

It’s also important to remember, if the payday loan lender hasn’t broken the terms of your contract, your chances of having any debt forgiven are slim and could result in enforcement action.

With that in mind, it’s always best to avoid payday loans entirely.

What payday loan debt advice is available?

If you’re struggling to pay for a payday loan or are having hidden fees taken from your bank account by the payday lender it’s important to seek professional debt advice as soon as possible.

Your Debt Expert specialises in providing debt help to people struggling with payday loan debt and our team can help you find a debt solution to stop pressure to pay what you can’t afford.

With their help you could freeze interest charges and reduce what you owe to one affordable monthly payment.

To find out more about how you can manage payday loan debt without borrowing money, talk to Your Debt Expert on 0800 082 8086.

 

Where can I get more advice on Payday Loan Debt and other debt solutions?

To discuss your options and get the support you need to deal with your debt today, contact us now on 0800 082 8086 or click the button below to get started