Introducing the Payday short term high-interest rate loan and how it works: The first
The first thing you need to know is that a Payday loan is not the solution to pay off your debt. A Payday loan is not a solution if you have no money and are already struggling financially. A Payday loan is not intended to help you pay off debt. The key word, when examining a Payday loan, is “short.” These loans are designed for customers to get their hands on some quick cash that they will pay off timeously when they get their next pay-check. A Payday loan is much like borrowing some cash from a friend that you can pay back because you know you have money on the way to pay it back. The only difference is that Payday lenders charge you interest and quite a hefty one at that. You would never borrow money from a friend if you knew that you won’t be able to pay it back.
Payday lenders are most criticised for the interest rates that they charge to take out a loan. The reason for this is that firstly the Payday lender is taking all the risk when handing out cash to people without all the fuss of a bank loan or overdraft. Secondly if you do pay back the loan timeously the interest is not unreasonable. If you roll your loan over you are going to get into trouble.
Before taking out a Payday loan consider the following:
- Will I be able to pay the loan back on time?
- Do I have a clear understanding of how the interest rates?
- Why do I need to take out a short term Payday loan?
- If I know that I won’t be able to pay it back, what are the alternatives
When you can’t pay a Payday loan back, the loan will be rolled over. This means that the loan will be extended for another month and this is where it becomes dangerous. This is how a rollover works:
- If you roll your loan over the interest of sometimes over 4000APR (Annual Percentage Rate) can cause a substantial increase in the amount you have to pay back.
- If you roll your loan over you may also be charged additional costs and fees
- There is a cap on how many times you can roll your loan over which is in the interest of the customers. In the UK, you can only roll your loan over tree times.
You also need to be aware that when you give your bank details to a Payday company, you are in essence giving them permission to draw money out of your account. This is called a CPA (Continuous Payment Authority). To make sure you have covered all bases these are the things that you need to consider:
- The Payday loan company can draw money from your account at anytime which is not ideal if you aren’t expecting it.
- These CPA’s are sometimes a hassle to cancel.
- There is a regulation that states that a Payday lender can only draw money from your account twice.
It is very important to do your homework if you want to take out a Payday loan. It is this intrepid writer’s opinion that one should never take out a Payday short term loan unless it is certain that it can be paid back in the short term.