Payday loans have revolutionised the short term finance market ever since they exploded in the UK back in 2006. Payday loan TV adverts continue to occupy prime time TV slots thanks to their popularity translating into revenue for their companies. Therefore most of the population have a good idea of what payday loans are, or what the companies behind them say they are! We have put together a list of five facts about payday loans so that if you have any doubt about what they are and what they are intended for, hopefully this will iron them out.
Payday loans are not free
Payday loans are provided by a financial lender at a cost. The cost is the rate of interest or APR which at its most competitive is 1737%. This means that for every £200 borrowed, you must repay £50 within the agreed timescale of 30 days. This essentially means that the loan costs £50. Every single payday loans company will charge you an amount of money to take out the loan.
Payday loans must be repaid in full
The full cost of payday loans must be repaid in full once you agree to take out the loan. The lender is not sensitive to personal situations be it redundancy or pay cuts etc, therefore they will expect you to make the agreed repayments by the agreed dates. If you do not adhere to this, they will try and contact you to discuss the situation. If you still do not cooperate, they may pass your case onto a debt collector.
Payday loans are not always the cheapest option available
Payday loans fall into the bracket of short term financial solutions. There are other sources of short term borrowing which are overdrafts (secured and unsecured) and credit cards. It is imperative that you research how much you need to borrow and identify the cheapest possible way of borrowing that amount of money.
The longer you take to repay the loan the more money it will cost you
Payday loans are only meant to be a loan until your next ‘payday.’ This is a period of time between 14 and 30 days. If you choose to defer the repayment, you will incur a cost usually equal to another month’s interest. Therefore if you have borrowed £200 and defer the payment for a month, you will be charged an additional £50, therefore you will owe a total of £300.
In the US there are two payday loan companies for every Starbucks
Let’s round off with a fun fact! In the US (which is where payday loans originated from), payday loans are still extremely popular, so much so that there are 11,000 Starbucks locations versus 23,000 payday loans locations! This demonstrates exactly how popular this industry has become.