Payday loans play a prominent role within today’s society – providing the ability to quickly borrow a small amount of money, to meet unexpected costs like replacing your boiler or repairing your car.
We speak to many members who say as long as you repay them on time, what’s the big issue?
Below we have provided the top three dangers of using Payday Loans – to help you make an informed decision the next time you chose to borrow.
In the United Kingdom lenders are required to advertise the charge for borrowing money. This is known as the Annual Percentage Rate (APR).
The typical APR charged by payday lenders can often be higher than 1000%, which understandably is off-putting to potential new customers.
To overcome this problem companies will advertise a “fee” instead of an APR, because it looks less scary. For example, £1000 loan for a month may have a fee of £250, the total repayable is £1250.
To put that into perspective, if you borrowed the same amount from Prison Service Credit Union at 9.9% APR over the course of year the total repayable is £1055. This means it costs nearly £200 less to borrow from your Credit Union for the year compared to what payday lenders charge for just one month!
You will hear people talk about the payday loan trap. This is when someone struggles to meet their monthly repayment and tries to pay it off by taking another payday loan.
Unfortunately, in many cases the individual does not earn enough income to meet these regular repayments and can see the cost of an original small loan magnify into thousands of pounds.
Our final danger is that borrowing from a Payday Lender will likely have a negative impact on your ability to obtain credit in the future from more mainstream providers.
Over the course of the next few years are you likely to want to;
We all know that these provider will run a credit check, but did you know that all credit reference agencies differentiate Payday Loans on your credit report?
Some mortgage providers specifically state that they will not lend to applicants with a payday loans history, even if it has been repaid in full and on time. The reason for this is because it indicates there is an underlying problem with budgeting and money management.
Applicants with these attributes pose a higher risk when meeting monthly mortgage payments.
You may wish to consider this when planning for the future.
So our advice is simple, hunt around for the best alternative. Depending on your circumstances you may wish to turn to your credit union, explore 0% credit cards or request your bank considers your overdraft facilities.
If you would like to learn more about how the Prison Service Credit Union can help you, visit our website www.policecu.co.uk or call 0121 700 1211.