Summary  

Payday loans are not to be advised but some people see them as a life-line to last until they get paid. We talk about what they cost and whether there is an alternative without committing to a long-term loan.

Payday Loans Are Bad News

For families that are having problems keeping up with outgoings Payday loans are offering them the chance to borrow small amounts but pay it back quickly from their next pay packet. It is an attractive offer and gives them instant cash to keep them going until payday.

Sometimes everything comes at once, birthdays, holidays and Christmas and parents jump at the chance to get a cash advance without committing to a long-term loan; but, at what cost? The risk is high so the rates will be similar.

A loan of 750 pounds from one company is offered at an APR (Annual Percentage Rate) of nearly 2,000 per cent, which they are above board about and they disclose this on their website. The cost works out at 25 pounds per 100 pounds of online borrowing. The arrangement for repayment is set up at the start to be paid by automatic payment from the debit card of the borrower on a certain date. If necessary the loan can be deferred or decreased but there will be extra charges to do this.

When you are desperate for money it is easy to over-look what it will cost to get the cash in your hand. Borrowing 200 pounds costs 50 pounds and might allow you to buy Christmas presents or book a flight for a holiday and another 50 pounds does not sound much. Paying this rate of interest over the term of a longer loan would cost an absolute fortune.

Consumer organization, Which?, advise that “Payday loans are bad news on so many levels. Before you take out a loan, check to see if you are eligible to join a local credit union.”

It seems unbelievable that there are no limits on what lenders can charge in interest. The Financial Ombudsman Service can be a help and they do try to ensure that the consumer is not treated unfairly. They will consider any complaints with regard to credit agreements, the sale of them, look at the fees charged, interest rates charged and how they deal with any complaints from the customer.

The FOS receives enormous amounts of complaints regarding financial matters, payday loans being a small amount of them. They investigate a complaint if there is reason to believe that a customer has been mis-lead or mis-informed, but if a loan was taken out on the understanding that the interest rate was very high then they cannot expect, having agreed to the rate, to then have it reduced.

Short term loans can also be had via a credit union. You have to join and are eligible if there is a common bond with another member, for example, through the same workplace or living in a certain area. They do limit the amount charged for borrowing but the majority of them charge far less than this.

This is a better way of borrowing small amounts over short terms and to find out more information about your local credit union you can ring 0161-832-3694 or you can search online.

If you ever need advice on a loan of any kind you will find independent loan advisors online. They know about all the different loans that are available and will always know exactly where the best deals are and with whom.