With the current global financial economy being as bad as it is,
many people are finding themselves running out of money in between paychecks. Some people resort to using the overdraft on their current account to get through, or they use their credit card to pay for day to day expenses. While this is not usually a problem, you need to make sure that you can clear these debts as soon as possible so that you do not incur interest charges that make your debt unwieldy.
Unfortunately, many people have exhausted these options and are left wondering how they are going to get through the month paying their bills. One of the options that is open to them is payday advance loans. These loans are quickly becoming popular throughout the world and you can borrow a few hundred pounds to see you through. There is no credit check required, and as long as you can prove you have regular income and a bank account that is not in arrears you can usually qualify for one of these loans.
The payday loan debt trap
- Payday loans do have two major drawbacks and they should really only be used in an emergency because of this. They come with a very high repayment rate, and you can easily find yourself getting caught in what is known as the payday loan debt cycle. Depending on the payday lender you use, you could pay a fee up to £25 per £100 that you borrow. Additionally, some companies charge other fees, such as administration fees that add to the amount of money you have to repay. So if you borrow £400, you are looking at paying the payday lender £500 plus any additional charges the lender tacks on. This is an extremely high cost, but if you need money in a financial emergency it may be well worth the cost.
is the second problem you face when you use these services. You borrow money until your next payday, you pay it back, and then you face borrowing money again because repayment leaves you without enough money to pay your bills. You become dependent on taking out a new loan every pay period in order to meet your bills. And when you add on to the money you borrow and the cost of borrowing it, you simply cannot get out of the cycle.
This cycle of borrow-repay-borrow
has been noticed by the government of the United Kingdom, and there have been calls for stricter regulation of the payday loan industry. Some payday lenders are changing their lending practices and now only allow the loan to be ‘renewed’ twice at the same repayment rate. All renewals after that must be for a lesser amount so that eventually the debt is completely cleared and the borrower getting out of the cycle.
Should payday advance loans be avoided? Not necessarily. Unforeseen expenses pop up all the time, and as long as you are confident that you can clear the debt
in a reasonable amount of time then you should be able to rely on one of these loans to help you out.