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4 Reasons To Avoid Payday Loans

Sometimes no matter how many cutbacks you make and how much money you free up selling items within the home via various places from carboots to Cash Converters you may still find that we are struggling to keep up with paying bills.  You need to resort to borrowing money to keep things going for a short while until the situation improves.  Often, credit cards or a bank loan can help make up the shortfall in the budget.  It’s not the best idea but then it isn’t through choice in most cases and shouldn’t become a habit.  If this has been happening a lot lately and you reach a point where you are no longer eligible for another credit card or loan as your credit score has fallen too low then you might end up considering a payday loan.

These companies advertise themselves as lenders without all of the hassle of dealing with a bank.  They not bothered with all of that credit score stuff, if you need a loan they’ll give it to you.  According to the adverts, they’re just here to help you out of a bad situation.  Of course that’s not the case and using short term loans can land you in a pretty bad financial situation. 

These are just 4 of the reasons that you should never use payday loans.

High Interest

The interest on a credit card is usually somewhere between 15 and 20 percent. That means if you borrow £100, you’ll pay £15-£20 interest on that.  Sounds like quite a bit?  With payday loans things could get a whole lot worse.  The price you pay for not having to go through a credit check is a ridiculous rate of interest.  Often, it can be as high as 400 percent on a payday loan; that means you could end up paying back £400 if you borrowed £100. Considering that people are often borrowing thousands from these companies, you can see how quickly the price of paying it back can spiral out of control.

They Encourage A Cycle Of Debt

Imagine the scenario, you’ve taken out a payday loan to cover your bills at the end of the month. That month passes and then it’s the end of the following month and it’s almost time to pay your bills again. This month, you’ve got to pay the repayments on your loan as well as all of the other bills that you’re already struggling to cover. That means your shortfall is going to be even larger now and the only way to cover everything is, you guessed it, get another payday loan out. This is how payday loan companies make most of their money, from people that end up in a cycle of debt and pay huge interest bills every single month. When you’re in that situation, your debt will grow at an alarming rate.  With huge interest payments every month and then charges on top for missing payments, you can build up thousands in debt fast.

If you’re struggling to cover all of your expenses, payday loans aren’t the way to deal with it. It’s best to learn how to manage your money better and cut expenses so your income is enough to pay everything.  It only takes one loan to get yourself into a cycle of debt which is incredibly hard to get out of.

Payday loans are Often Mis-Sold

Although they don’t conduct credit checks, payday loan companies can’t just hand out money to everyone. They have to follow regulations about responsible lending but often, they don’t!  It’s up to them to decide whether a person is likely to be able to repay the debt and assess the risks of them getting into financial trouble.  But payday loan companies thrive on people that are in debt so they often mis-sell loans to people that they know can’t afford them.  Some companies have also been accused of using questionable methods for recovering debts including harassing people on the phone and even taking money directly out of people’s accounts without letting them know first.  If all this sounds familiar, you should be asking, can I get a refund for mis-sold short term loan?  Often, the answer is yes. Contact a solicitor and tell them that you think you might be due a refund. If the loan company wasn’t clear about the interest or the late charges, or if the loan amount made up a significant chunk of your monthly income, you probably qualify. Getting the interest and charges on that loan refunded can really help you to get out of a difficult financial situation.

You Have No Control Over Payments

Taking money directly out of people’s bank accounts is one of the things that the payday loans companies are getting in trouble for but often, there isn’t much you can do as you’ve agreed to let them do it.  It’s no surprise that payday loans come with a contract that has hidden dangers within.  They tend to advertise it as a service that makes things easier for you; they’ll just take the money out when it’s time to make a payment so you can never forget.  The problem is, it’s notoriously hard to stop them from taking those payments.  If you need an extra couple of days to get the money together, forget it, they’ll try taking the payment and if the money isn’t there, they’ll slap a big penalty on top.  When you’re trying to dispute a loan, you many still be paying while you go through the legal process and this can be incredibly lengthy.

Too many people fall prey to payday loan companies because they market themselves at people in difficult financial situations that have no other options left.  Even when it seems like a payday loan is the only way out you should remember that it will only make things worse.  Try to get your finances under control by limiting spending and borrowing through safer channels like credit cards instead.  If you take out a payday loan you risk more serious financial problems in the future.

Have you ever taken out or considered taking out a pay day loan?

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This is a collaborative post.

This Post Has 38 Comments

  1. I remember getting myself into a bit of debt when I was younger, they make it so easy. It took me ages to pay it off and I would never touch one again. They can be so dangerous!

    1. They sure do and then it’s hard to get them paid. It’s a nightmare.

  2. I hate payday loans but can see why people find them attractive

    1. Same here. I know people get desperate but there is always another way.

  3. This is one thing I have never done, it prays on the desperate without looking at the long-term impact. 🙁

    1. They sure do. It’s a shame they are allowed to offer these still.

  4. Yes I would never use one my hubby works for a bank so he is does not like it and says it is so bad, plus so many other ways to go about it as you say.

    1. There are other ways. It’s a shame people don’t think it through enough and find an alternative.

  5. I have seen payday loans advertising between 1,000 and 6,000% APR!! how these people sleep at night is beyond me .. sorry they make me wanna rage.. sorry

    1. Oh wow that is shocking. I don’t blame you I think it’s awful that they are allowed to run their business in this manner.

  6. It’s so easy to spiral into a a debt mess before you even think about it. I cannot believe they can still get away with those interest charges. It’s ridiculous.

    1. It is very easy which doesn’t help matters. I know it’s unfair and there should be a law against it.

  7. I personally hate loans and would avoid this to a maximum as I can, only have my house one, nothing else! These are great tips for someone starting to learn how to save money!

    1. Thanks Amalia. I think most hate them but unfortunately some people can’t find an alternative way to pay debts in some cases.

  8. This is a great post. I think people often dont realise that these companies can get you into a vicious circle that is so hard to get out of. This is a really helpful post for anyone considering this.

    1. I’s true. I think it’s best for people to be aware which is why I like to to mention them on the blog.

  9. This is great tips!! So much of useful information! The interest rates sounds crazy though!!

  10. Oh I totally agree, I fell into the whilst at uni and it was hard getting out of the cycle and now I avoid them like a plague

    1. I don’t blame you 🙂

  11. I wouldn’t touch payday loans with a barge pole. This is a great post.

    1. I really don’t blame You they always have over inflated interest rates.

  12. YES!! This is so important payday loans are terrible and people should not have to be loaning in this way x

    1. They shouldn’t be legal in my opinion.

  13. Totally agree. Only borrow money when needed and avoid unnecessary expenses. Being more responsible over our finances is the key.

  14. off course. I would try to avoid loans as much as I can… I remember the time when I had to use it, the struggle was real. the interest rates are nuts like. thank you for sharing these tips 🙂

    1. They are really high. I don’t know why hey haven’t been banned yet!

  15. I personally hate loans and would love to avoid this at all cost. These are some great tips for someone who has debts.

    1. Thanks Dominique. I hope that people find it useful.

  16. Oh my yes! Save don’t spend. And interest rates can be oh so high, which is never a fun thing to have to deal with.

  17. These sharks that offer these types of loans prey on people in need or blind to the terms and conditions. Wish this type of practice was illegal, daylight robbery. The interest rates are extortionate!

    1. The interest rates are crazy. Totally excessive and unfair.

  18. I completely agree with you on this one. Getting a loan when you’re having issues financially will never help, especially loans like this.

    1. Theses sorts of loans can never be a good thing.

  19. Loans are never a good thing! Always try and stay clear from them when you can is what I say.

    1. I agree. If you can avoid them it is best.

  20. A kind of thing that I have never came through thank Gosh!

  21. Payday loan sites terrify me. I cannot believe the interest on the borrowing. It’s awful!

    1. It can be horrendously high and get people into further debt.

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