Is it worth taking out a payday loan and what are the dangers?
30 July 2013 - Which Way To Pay
The truth behind Payday Loans
Payday loans are a great way to tide you over until your payday if you find yourself unstuck with an unexpected bill, however, at what cost? Below we look at the truth behind payday loans, whether it is worth taking one out and how to spot the dangers.
What is a payday loan?
Payday loans are short term loans designed to help you make any unexpected bill payments until your next payday. You can usually borrow as much as you would like up to $1,000 over a period of 30 days. You can apply online and usually the money is wired into your bank account within 24 hours. Be careful though, you must make yourself aware of the interest rates and any fees you might incur.
Payday loans and what do you need to be aware of?
The rate of interest which payday loan providers charge is excessive compared to all other types of borrowing. There is no other type of borrowing which has such a high APR interest rate making it an expensive form of borrowing.
It is dangerously easy to roll your loan from one month to the next, making the amount you need to repay astronomical. If you do not make the repayments in full after your payday you could find yourself in significant financial trouble with debt you cannot control.
Payday loans can have a detrimental effect on your ability to borrow in the future. Many credit referencing agencies are listing payday loans separately on credit reports, lenders are now beginning to take this into account when they are deciding whether to approve you for credit.
Before you apply for a payday loan
Before you apply for a payday loan, ensure you have assessed all the other borrowing options available as this might not be the best solution for you. If you are in any doubt then always seek independent financial advice.