Payday Loans are possibly one of the easiest forms of
credit to obtain but with this 'ease of credit' comes with
a high price tag - interest!!
Originally the form of lending known as "Payday Loans"
originated in the USA and has now landed on the shores of
the UK - spreading at an alarming rate.
A Payday Loan is typically a very short term loan which is
repaid, in full, when you get paid from your employer.
Payday loans are really designed to get you out of a 'fix'
when you find yourself short of money before payday but
they do have an extremely high interest rate attached to
them.
A typical example of this would be that you borrow
£100 but repay £130 or £140!!
Considering that Payday loans are very short term loans
then this rate of interest is exceptionally high indeed.
Now it may just be that you find yourself in desperate need
of a small loan and a Payday loan will fit your
circumstances. What you will need to bear in mind is that
if you are short of money one month and you borrow money in
the form of a Payday loan then you will need to pay the
original amount that you borrowed, plus the interest.
This may have a 'knock-on' effect of then leaving you short
of money again. When faced with that situation you may be
tempted to turn to the Payday Loan option again and this is
where the hidden danger is waiting for you.
Let's say that you borrowed £200 one month and on your
payday you paid back £260. This would leave a
£260 hole in your wages which could temp you (or leave
you no other option) but to use the Payday loan option
again and borrow another £200.
This is the start of a vicious circle that many people find
themselves trapped and the payday loan hidden trap will
have snagged another victim.
Each month when you repay the £200 loan you are paying
£260 out of your wages - this leaves a £260 hole
in your wages - so you borrow £200 again to 'fill the
hole'.
Then the process repeats itself again when you have to
repay £260 on payday - you're trapped in the Payday
loan circle of debt.
The loan company lend you £200 once - it's the same
£200 the re-lend you each month - and for this
pleasure you are paying them £60 each month when you
repay the loan.
Over a 12 month period you will have paid the loan company
£1,200 for basically borrowing one lot of £200.
It is a very harsh reality for many people who
unfortunately have no other option and are unable to get
out of the circle. If you are considering a payday loan
then carefully think about what you are getting in to
before borrowing any money.
If you have no other option and are 100% certain that you
will have enough money to repay the loan without it
affecting the next months finances then a payday loan could
be your only option.
Otherwise don't fall into the payday loan trap. Try and get
through or ask a friend to lend you some money - even if it
isn't as much as a Payday loan company - it will be cheaper
when it comes to paying it back.
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