What are payday loans? What are the alternatives to payday loans?
It's bad enough being skint but, to add insult to injury, some people have been getting very rich thanks to payday loans. In this article we take a closer look at payday loans and what they might mean for you.
What is a payday loan?
It's a high interest, short term loan. That was easy.
What's the catch?
If you don't already know, payday loans have been the subject of many a heated debate over the interest rates imposed on borrowers. It's not unusual to see rates of over 1000% APR (that's not a typo; it really does have three noughts on the end).
It's bad enough being short of money but getting hit with interest rates this high has got to hurt.
Who needs a payday loan?
The word 'need' is subjective. This type of loan might seem like your only option to get some extra money. We all go through times where we're short of money but you need to weigh up the pro's and con's.
The industry has been heavily criticised for its practices with a number of vocal opponents saying that the loans are aimed at low income families. Whilst this may be true in most cases, a growing number of middle class families, on above average wages, are being sucked into the quagmire.
At best, it would be fair to say that none of really 'needs' a high interest, short term loan. The problem is that the desire to keep up with the Joneses and fill our lives with meaningless junk is simply too strong.
What Are The Alternatives?
The easiest way to avoid the pain is to abstain. To put it simply, drop the idea that you need a new television just because yours is over 1 year old.
If it's fast cash you're after why not sell of some of the stuff you don't need? I can guarantee that, unless you're homeless, there's an awful of stuff in your home that someone will happily buy off you.
Sell your partner into slavery. Joking!
I could go on and on but I don't want to insult your intelligence. If you think you need a payday loan stop and ask yourself if you really do need the money.
Sometimes emergencies do arise and you might be left with no alternatives (I'm assuming you don't want to borrow from friends or family). If you're stuck between a rock and a hard place then make sure you can repay the money on the due date. Nobody wants a hairy shark turning up on the doorstep!
So who is getting rich?
The company owners. The interest rates they charge are astronomical and it all goes towards funding a very nice lifestyle.Here's a rundown of the top 5 UK payday loans companies and the rates they currently charge. I've added a quick calculation of the repayment amounts you have to fork out. This should give you an idea of how lucrative the industry is:
Repay £129 on a £100 loan if repaid within 30 days
Repay £125 on a £100 loan if repaid within 30 days
Repay £136.72 on a £100 loan if repaid within 30 days
Repay up to £129.50 on a £100 loan if repaid within 30 days
Repay £125 on a £100 loan if repaid on your next pay day
Are your eyes watering yet? Before I finish off, let me just say that payday loans were envisaged as a very short term method of lending money. If you drag your feet and fail to meet your payment deadlines then you're not only doing yourself a massive injustice but you're helping the lenders get very, very rich.I'm sure Shylock is turning in his grave: a pound of flesh is nothing compared to these sums.
Oh, and if you're unsure of what APR means, we have an article about that here.
Written by James Redden.
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Last update: 19 June 2014
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