Are you thinking of getting a pay day loan, but have heard horror stories? You’re not alone. Pay day loan companies are often vilified because of their sometimes high interest rates, and the way that some people who have taken loans out say they are now in a never ending cycle of debt. But are pay day loan companies really that bad? We discuss the pros and cons:
Pro: A Need For Fast Cash
Sometimes, people really do need money, and FAST. This could be down to a variety of reasons, for example, a health emergency or an emergency car repair. Saying that, many people question whether the actual terms of the transaction are reasonable.
Con: Interest Rates
Let’s say you borrow £100 from a pay day loan company, typically you would be charged 17.5% interest (£17.50 for each £100) which doesn’t seem too extortionate. In fact, the interest rate is lower than a lot of credit cards.
The only trouble here is that you may only get a couple of weeks to pay back your loan before you have to pay another 17.5%. Then if you haven’t got the money in another 2 weeks, another 17.5% is added on to your debt. The amount can add up, and quickly – but only if you haven’t got the money in the first place.
If you can’t pay back the money straight away, you could find yourself in a whole world of debt. If it takes you an unexpectedly long time to get the money to pay back your loan, the hundreds you originally borrowed could turn into thousands! In some cases, you could be paying back 140% interest. Even credit cards with high interest will only ever have an APR of maximum 40%.
More Pros and Cons:
- Pro: they only require proof of employment and some recent pay slips with your application.
- Con: pay day loans are usually only small amounts, say a maximum borrow of £1000.
- Pro: you get quick cash for an emergency instead of being left in the lurch.
- Con: failing to pay your loan can seriously damage your credit rating.
- Pro: the loan is in your bank quick as a flash, as opposed to other kinds of loans.
- Con: you don’t have long to pay back the amount before the money mounts up.
Payday loan companies tell the world that they simply provide a service that a lot of people need at some point, and although some people make bad choices they still provide a good service. When you are looking for pay day loan companies, it’s better to do your research as there are many different options out there for you.
People who claim pay day loans are bad or not worth the risk because of debt they’ve got into knew what they were getting into when they took out the loan. They were unable to pay the loan back in the agreed time and the credit was then added to the amount owed as agreed. Pay day loans are the perfect solution to emergencies when you’re short on cash, however; you need to be 100% sure you’ll have the money to pay them back in the agreed time before the interest creeps up!