The following guest post is provided by Shay Quincy
In the last couple of years, there has been a significant rise in the number of companies offering what are known as payday loans. These loans are a high-interest, short-term type of borrowing that is aimed at people who can’t get approved for credit cards and standard loans and who need money to tide them over until the next payday.
If you are considering using a payday loan, to pay a bill or cover a cost that you can’t quite afford right now, there are some very important things you need to know.
Interest rates are sky-high with payday loans. Payday loan companies charge astronomical interest rates on their short-term loans. You can spot these by looking for the small print at the bottom of the screen when an advert for payday loans comes on TV, and you may be shocked to see that rates can climb as high as 2,000% or maybe even more.
Repayments, plus interest will usually be taken straight from your bank account on your payday or chosen date. If you don’t have the money, you could end up overdrawn or facing further charges on top of the huge amount of interest you owe.
Getting approved for a payday loan is quick and easy, but this can make it too tempting to resist. This is one of the reasons payday loans are so popular, as you can apply online in minutes, be approved right away and have the money in your account as soon as 24 hours later. Whilst this may be faster and easier than most credit card applications, it is perhaps too easy, and the temptation could lead you to turn to this expensive way of borrowing on a regular basis.
There are much cheaper ways of borrowing available. If you plan your finances ahead of time, before you need money on an urgent basis, you can apply for a credit card or a loan with a reasonable interest rate to cover the amount you need. You will then have time to pay it back. If you find yourself needing money urgently, it might be a better idea to call your bank and arrange an extension on your overdraft.
Payday loans can be a viable option on a very short-term basis. This is what these products were designed for – to be used in the short term. If you use them regularly or choose to spread out your repayments, payday loans and their astronomical interest rates will cost you a small fortune.
This guest post provided by Shay Quincy.
Photo via Taber Andrew Bain/Flickr