What to Know About Payday Loans
One of the most expensive ways to borrow is to take out a payday loan, so before you do you need to be 100% sure that you are able to repay it back on time and in full. If not the cost can soon get out of hand.
If you are thinking about getting a payday loan then this is what you need to know.
How they Work
Payday loans are short-term loans that have been created to tie people over until they get their next paycheck. The money is paid straight into your account and has to be paid back by your next paycheck with interest.
The lender will take what they are owed directly from your bank account.
Over a year the APR could be 1500% compared to 18% for a credit card.
Most payday lenders used to charge £25-30 interest a month for every £100 that was borrowed. This however applied if you did pay your loan back in time. If you paid it late then a default fee was also charged as well as a daily interest.
However, new rules have been implemented so that borrowers will never pay back more than twice what they borrowed. There has been a cap placed on default fees.
Many payday lenders will ask to set up a recurring payment. This will allow them to take what you owe directly from your account on the repayment due date. If you do not have enough money in your account in order to repay the loan in full you may miss paying other bills or go overdrawn.
Avoid Payday Loan Traps
If you have a problem with repaying your loan then the payday lender might tempt you with an extension, which is called a rollover or deferral.
Rolling over a loan might seem like a good idea but it can lead to problems, as you will need to pay back a lot more in interest and other fees.