Short term, high interest ready, otherwise known as payday loans, are a real bone of contention in the financeindustry. They are often a last resort for people who cannot get credit on better terms, but people can also borrow them when they only need to borrow a small amount or need money. money in your bank account very quickly. They have been the subject of court rulings in the past, with the biggest payday loan service, Wonga, going into administration when it had to refund customers because it failed to clarify terms. There are now a lot more regulations for short-term lenders, and they have to make it clear how much you’ll end up paying. to reimburse. It’s also now more common for repayments to be spread over several months, rather than the full amount taken from your bank account when you get paid.
These types of loans are a very expensive form of borrowing, with interest rates (APR) over 500%. When you compare that to the example (still high) 40% APR for an overdraft, you start to see how high that number really is. A lender gives the example of £480 borrowed over nine months, and the amount payable is £959.04, almost double that. On top of that, they can be severely frowned upon by mortgage lenders and make borrowing more difficult in the future.
If you’re considering getting a payday loan, it’s worth looking at your other option – there’s a wealth of information on zero or low percentage credit cards, overdrafts, credit unions and transfers money on moneysavingexpert.com. If you are already one, here is what you can do to avoid any problems:
Make your payments on time
Failure to pay on a payday loan can lead to increased fees and increased financial stress, so missing payments should not be taken lightly. Make sure you know your payment schedule and are able to leave enough money in your account to cover repayments. Better yet, if you can save up to pay off the loan early, it’s worth seeing if you can negotiate an early settlement with reduced interest.
Take action if things get tough
If you suspect you won’t be able to make your repayments, or if your circumstances change and you’re short, waste no time in taking action. If you have a friend or family member who could help you out in the short term, this is one of those situations where it might be a good idea to ask for help. If not, you will need to let your lender know and see if you can renegotiate your payment terms. If that thought gives you cold sweats, charities like StepChange and CAP can walk you through the process, or even negotiate on your behalf to make things more affordable and take the pressure off a bit.
Don’t let them get away with bad behavior
Any lender has a duty to provide you with clear, quality customer service and to be upfront about payment terms. If there were any communication or service issues, or if you think your loan was mis-sold – i.e. you could never have afforded it or the terms weren’t unclear – you can complain to the Financial Ombudsman Service. This is a free service that determines whether a lender has acted fairly or not, and you can sometimes get compensation if your loan has not been processed correctly.
You are entitled to breathing space
Under new regulations introduced by the government, you can get a 60-day reprieve from legal action from your lender if you have debt problems, including a freeze on interest or fees payable. It can give you much-needed time to stop panicking, collect your thoughts, and see what help is available for you. You will need to access it through a registered debt counsellor, charity or mental health professional if your debt has caused a mental health crisis. In the latter case, your breathing space time lasts as long as your crisis period, plus 30 days.
Payday loans are generally not the best way to borrow and are one of the easiest ways for debt to become a problem if not carefully managed. But if you already have one and are worried about making refunds – or how much it’s costing you – there are options available to you, so don’t despair.
love our money matters column? Worried about your finances? Or do you just want expert help to achieve your financial goals? contact us at firstname.lastname@example.org to submit your own financial diary and access our expert advice, tailored to your finances! These submissions may be anonymous.