| While payday loans have long been popular in the United States, they are a relatively new service for UK customers, and many people aren't certain exactly what they are. With all the controversy over whether they're a worthwhile service or merely a type of legitimised sharking, it's a good idea for any GB borrower thinking about applying to know precisely what they're getting into.
A lot of us have spent all our cash when getting towards the close of the month to at least some extent, and have to tighten our belts a little by trimming down on socializing or other sorts of non-essential spending. This is a perfectly normal (if trying!) fact of financial life for most of us who are employed and get paid once a month. Sometimes still, running out of funds can be more severe than this if there are necessary expenses to be paid such as an unexpected bill or repair cost.
Many people use the overdraft facility of their bank accounts to provide for a bit of breathing space when cash is limited, but these days many people are permanently overdrawn and near their limits, so this may not be an option.
An alternate way of tiding you over until your next pay is to use a credit card, both for purchases and cash withdrawals. There are several problems with this, including the fact that credit cards are an expensive kind of borrowing, and it's easy to build up a giant balance which can have a fateful effect on your long term financial health.
If neither of the previous two options are right for you, then a payday loan may be worth looking at. Briefly, these loans are available to virtually everyone with banking facilities and a debit card, and who is in regular employment. When you take one out, the issuer will transfer the amount you apply for directly into your account, commonly within a day of your application being sanctioned. During your application you will have supplied your debit card details, and the loan company will use these to automatically repay your loan on your next pay day, as well as their fees.
And in that lies one of the big problems with wage advances - the charges.
This form of finance is notorious for being expensive, and eye-watering APRs of 1000% or even much more are the norm. These APR figures are possibly a bit misleading, as the APR system is designed for credit with a longer repayment term than cash advance loans where the term is measured in a matter of days rather than years. Nonetheless, payday loans are rather costly, with a fee of 20%-2% of your loan amount generally the usual cost.
The other major drawback is that repaying your loan and fee is likely to leave you broke again at the end of next month, and it's easy to get into an expensive downward spiral of taking out a loan each month - which is when those high interest rates will really start to hurt.
So, is there any point to pay day loans? Of course, but only really for a real emergency where there is no alternative. If you're using these loans to finance your day to day life, then it would be better to examine your finances and ascertain where you can save money, or to reconstitute your debt using a consolidation program or similar to free up some extra funds every month. |
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