Spend just one day watching daytime TV and you’d think that money really does grow on trees; there are so many advertisements for short term loans. Payday loans, as they are called, have only really come to into the fore in the last few years and the companies offering them are now commonplace. The idea seems straightforward; small, fast, loans to tide you over until the next payday. Why then, do so many people seem to get into trouble with them? If you feel tempted by the glitzy payday loan ads on TV, read these eight things you should know about payday loans,
1. The interest rates are extremely high
Payday loans are designed for ‘quick fix’ emergencies, when you need some cash for just a week, or so. The interest on these types of loans is huge, when compared to other types of finance. The APR on some of these loans is as high as 5,000%!
2. Only take out a payday loan if you know you can pay it back quickly
Payday loans sound great, with their promise of instant cash in your bank tomorrow, just when you need it. The problem is though, if you roll it over and don’t pay it back quickly, that high interest can soon mount up. In just three months, you could owe twice the amount that you borrowed! Don’t take out a payday loan unless you are sure that you can pay it back.
3. Lenders can take money straight out of your bank account
Most payday loan lenders will ask you to make your repayments through a continuous payment authority (CPA) on your debit card. That means that they can take money when they want to and, take it without telling you.
4. You can cancel a continuous payment authority though
You do have the right to cancel the authority of the payday lender to take money from your account but then, of course, you are going to be in default on the loans and the lender will pursue the outstanding amounts vigorously.
5. Not all payday lenders are the same
Make sure that you know what you are getting into, before you sign up for a payday loan. These companies have very persuasive sales tactics and they will try and get signed up as soon as possible. The terms vary, from one lender to the next so, take the time to read the small print and make sure you understand how much you are going to have to pay back.
6. If you don’t repay your payday loan, they will pester you.
Payday lenders tend to be far more aggressive in pursuing late payments more than conventional lenders. If you miss payment, then a payday lender contact you repeatedly to chase the payments. It has been known for lenders to contact an individual fifteen times a day to try and get the money paid.
7. Customer service is generally poor
Payday lenders seem to be very efficient at getting you to agree to a loan and then getting the money to your bank, but they are not so efficient at dealing with customer complaints! They can get the initial loan money into your account in just ten minutes, but the Financial Ombudsman gets plenty of complaints about payday lenders, every single month, many of which are upheld.
8. You will be bombarded with offers from other sources too!
If you go shopping for a payday loan on the internet, then be prepared to be offered all kinds of other services via your email and mobile phone. I, foolishly, let a friend use my mobile number in a payday loan application and I got so many spam text messages and calls that my phone ran out of memory!
Payday loans are generally fine, when used for what they are designed for. The problem is that they are targeted at the very people who are quite likely to be unable able to repay them on time. You would be far better off borrowing from a friend, or saving you for what you need, than risking taking out a payday loan if you are not sure you will be able to repay it quickly.
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