Escaping the Payday Loan Trap

When Payday loans get out of hand it can quickly lead to a vicious circle of debt in which you find yourself taking out new loans each month just to meet the repayments on existing ones. Having too many payday loans and being unable to pay them can be a frightening experience as many of these companies will aggressively pursue money that is owed to them.

If you are in this situation the good news is you are not alone, and the law is on your side. An estimated 1.2 million people in the UK take out payday loans each year and, with astronomical interest rates often exceeding 2,500 percent APR, many find themselves in even deeper financial trouble. The credit counselling charity Step Change, which will help to draw up a debt management plan for free, says the number of people they advise on payday loan difficulties has quadrupled in three years.

Help is at Hand

The important thing in dealing with a financial crisis is not to panic. There are well-trodden paths, protected by law, which can lead you out of financial trouble and into a more stable future, and you do not have to take them alone. There are many sources of professional debt help, some free and some paid for, and it is best to consult them first. Payday loan companies typically use very heavy-handed tactics to get their money back so you will need the best advice behind you to deal with them.

The first step is to make sure your bank account and the money in it is protected. Depending on the payment arrangement you have agreed it might be possible for the company to withdraw the full outstanding amount of your loan if they know you are in trouble. So tell your bank to cancel any direct debits, standing orders or cheques and to refuse all future payments to the loan company.

Protect Your Money

The loan company might have required you to sign a continuous payment authority (CPA) and there is some confusion as to whether or not this can be cancelled. It can, under the terms of the Payment Services Regulations 2009, but if there is any doubt about your bank’s willingness to comply then either cancel your debit card and request a new one or move your money to a new account. Next write – never call as this will leave no record – to those you owe money to and explain that you cannot pay.

Debt advice organisations can help with sample letters and in devising a workable debt management plan which will offer the lenders reduced payments you can manage. They do not have to accept, and you may get a string of nasty telephone calls, but ultimately they have no choice short of taking you to court, where a judge is very likely to order even lower payments. Don’t allow yourself to be intimidated – with the right debt advice you will have all the support you need to get back on your feet.

 

Company Profile

1st Point Debt Solutions offers debt management solutions to help you resolve your debt problems.  If you require help on your payday loan debt, please visit – http://www.1stpointdebtsolutions.co.uk

 

The Truth About Payday Loan Fees Compared to Alternative Loan Charges [Infographic]

This info graphic looks at the cheapest way to borrow £100 on a short term basis from four different solutions. The case study focuses on Peter, who represents the average short term borrower and looks at all four viable options for borrowing the money.  These include a mixture of banking options and third party options including Payday loans, an Authorised bank overdraft, an Unauthorised bank overdraft and a Credit card.

To work out the total cost of each option we summed the following:

• The loan amount £100

• The interest rate for the £100 loan

• The period of time that the money was being borrowed for (1 week)

• Additional fees added to the original loan amount.

The results show very clearly which option is the most expensive and which option is the least expensive, therefore Peter has a very clear idea of which option is the cheapest option available to him for his loan of £100.

Payday loans
Source: Fast Payday loans Review

Payday Loans Usage Quadruples

The use of payday loans has quadrupled in the past four (4) years and are continuing to be a new source of borrowing for consumers.

There has been many changes over the past five (5) years in the banking and lending community, much of this due to our changing economy.

Due to the economy slipping near a recession, and jobs being lost, many people have found themselves struggling to pay their bills and debts, and many struggling just to get by.

The rising costs of petrol, gas to heat our homes, electricity, and car insurance coupled with people losing their jobs due to redundancy, has brought about a wave of home repossessions, and people seeking relief from their debts in some form of insolvency, such as bankruptcy.

Next up we have the banks tightening up the reins on lending, or the “credit crunch” as we have heard time and time again.

And yet, we still need to borrow, we need access to credit; for whatever reason.

But what these changes and financial disasters has done, is to create a very different borrower, and to meet this new type of individual that still has borrowing needs, and a need for credit, the banks, lending companies, etc, needed to change and morph as well; they needed to come up with a loan product that fit the needs of the new borrower/consumer.

Think of it as evolution, a bit of Darwinism.  An animal needs to change with the times, climate, etc, or become extinct.

So lending needed to change.

Think of it like this:

Poor credit + rising costs of living (we still need to borrow) x need an answer/approval quickly + need the cash fast (no waiting for days) = Payday Loans.

Payday loans are nothing new, but as a lending product they have come of age, especially in the computer age.  Could have imagined 20 years ago, sitting at home, on a computer applying for a loan, being approved and having the money in your account all within an hour!

Does it sound too good to be true, well it is true, but there is a cost, a price to be paid.  And that price is a high interest rate, in some instances, very high.  APR’s as high as 1,700% or even higher 2,900%!

But these are APR’s, annual percentage rates.  Payday loans are stated to be only used for short-term needs or usage.

Basically how a payday loan works is this:

If you are working and earning a wage and have a bank account, you basically qualify for a payday loan.  You borrow an amount you require, usually less than £1,000, and pay it back on your next payday along with the interest or fee that is charged.

And having poor credit is not an issue.

But are people seeking payday loans, and applying for them, oh yeah, big time!

Halifax Bank did a study which showed that many British workers were skint just 17 days after they were paid!  So in essence, they still have the second half of the month to go.

And where do many of them go to finish that month, payday loans.

Shelter, a housing charity in the UK stated that almost one (1) million people in Britain have taken out an emergency payday loan to help them pay their mortgage in the past year.

The charity also stated that seven (7) million people have been relying on some form of credit to help pay their mortgage and/or housing costs.

Shelter’s findings were based on a YouGov survey of over 4,000 people.

The numbers don’t lie.

Nick from paydayloans.co.uk has stated that the increase they are seeing in the number of people seeking payday loans, seems to correlate with the economic downturn, and the fact that when a person needs a loan quickly, say for a car repair or other emergency, they cannot wait around for days to get approved.

Here are some recent statistics:

Annually 1.2 million people in the UK use payday loans as a means of getting by.

A total of £1.2 billion is borrowed in the form of payday loans each year in the UK.

Interest rates can be very high, over 2,000% APR.

According to a consumer watchdog group, the number of people using payday loans has quadrupled in the last four (4) years.

That is a massive growth.

So 20 years ago we could not have imagined things today; loans in an hour.

What will the next 20 years bring?  Maybe banks and lenders will anticipate your borrowing needs and just send you the money.  Your account starts to get a bit low, and hocus pocus, alakazam, there is money magically placed in your account.

But what would be the interest rate??

This article was written by Nick Zapolski of www.paydayloans.co.uk