The worldwide credit crunch has has affected the UK as it has many other parts of the world - making credit hard to come by, and forcing some individuals with financial problems to try to find other ways to try to make ends meet. Taking advantage of the situation, many payday loan companies have sprung up, particularly online.
These payday loan companies lend money out at exorbitant rates of interest for short periods – often between two weeks and a month. Loan amounts are usually small – say a few hundred pounds. The idea is that when an individual’s paycheck comes in, they will pay the loan back along with its fee. This, at any rate, is the premise.
The “interest” charged for a payday loan (often called a finance charge) is usually based on a percentage of the loan amount. This is normally between 15% and 30%, plus a figure for administration. It is edifying to do the math on this as if it were an annual percentage rate. If you stretched these payments out over a year these payday loan finance charges come out to between 390% and 780%! Not a great interest rate, is it? In fact, it’s quite out of the bounds of anything reasonable.
On top of this, payday loan companies often use a check, written by you in the amount of the loan plus fees, as collateral. If you do not pay them on time, they are authorized to simply cash or deposit your check. Needless to say this creates the potential for overdrafts along with overdraft fees, miscommunications with the lender, bank hassles, and so on.
If you have a modest amount of skepticism and sense, you can see that these loans are ill advised. They are simply not a good thing to get into. They are costly as it is, and if you happen to miss the payment deadline for some reason, you can get into even deeper financial problems. The facts are clear – using payday loan companies to pay your common living expenses and combat your outstanding debts is a dangerous way to go.
If you are in a difficult situation of ever mounting debt, you are much better advised to go to a specialist who helps people with their debt problems. These kinds of companies are often reputable and will counsel you on the best ways to reduce and eventually eliminate your debt for good.
What are some of the things these companies do? First of all they will help you to budget better. They will counsel you on ways to reduce your expenditures and begin to get stabilized financially. They may also guide you on seeking benefits to which you are entitled. For instance, families in the UK making less than 66,000 pounds a year are eligible for benefits of various sorts, and many of these families don’t even realize it.
Other things debt counseling companies may suggest is seeing if you qualify for mortgage assistance and seeing if there are any unlawful charges that have been taken from you as you ran up bank or credit card debt. Often these charges can be refunded.
Payday loan companies do not educate you in any way on how to get out of your troubled financial situation. They merely try to profit from your desperate need for quick cash. They are generally a very poor way to go about finding a solution to your monetary issues.
So, before you get involved with one, know what your actual situation consists of and what your real choices are. Seek the help of professional debt counselors who can help you find other ways of dealing with your finances, instead of looking for a quick fix. You’ll be glad you took the small amount of extra time and foresight to look for a better direction.
