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Tuesday, 28th April 2009
What is a Pay Day Loan?
A 'Pay Day' Loan is a short term loan taken out for anything up to a month with the amount borrowed being paid off in full by debit card on pay day. However some firms will allow a smaller payment to be made and convert the outstanding balance into a loan to be repaid over a longer period. Loans usually range from £80 to £750.
What is the interest rate on 'Pay Day' loans?
Generally, you will be charged £25 to £35 for every £100 borrowed which equates to an interest rate in this case of 25%. This is fine if the amount borrowed is paid off ‘on Pay Day’ i.e. 31 days later but if it is not, the interest continues to build on the outstanding balance and this is where the problems start.
Lenders are required to clearly state what the APR is to two thirds of their customers on their loans and in the circumstances above this could range from 1,355% to as much as 1,845% depending on the lender used, the amount borrowed and the term.
Are Pay Day Loans expensive?
On average if you borrowed £50 over 60 days with a rate tier of 'average' then you will pay back £79.50, this is an APR of 2,222.46%.
In another example with a different lender if you borrowed £300 for 30 days then you would pay back £395.89.
So yes they are expensive. If you fail to clear the amount borrowed as previously agreed then you will receive penalties and additional costs, then it becomes really expensive!
Can anyone get a Pay Day Loan?
To be able to apply for a Pay day Loan you need to be;
How do you get the money from a Pay Day Loan company?
You can get the money in two ways,
Remember it is your responsibility to make sure you have enough money in your bank account to pay for this.
Why do people go to Pay Day Loan firms?
Due to circumstances many individuals are left with no form of credit. Many of those applying would be usually be turned down by main High Street lenders. When they need money to pay for car servicing, replace a broken washing machine or oven, for example or are under pressure to pay a bill to avoid court action they may be panicked into taking what seems to them to be an easy way out.
Consequently, and especially in the current economic climate, these firms are seeing an upturn in business.
What is the Government doing to protect consumers with these types of loans?
The city regulator Financial Conduct Authority (FCA) has imposed strict new guidelines, you can read more this here; New Payday loan rules mean good news for borrowers but less income for lenders
What do these firms claim in their defence?
They claim that it is misleading to talk about APRs in relation to Pay Day loans as the money is usually lent over a very short period of time. They claim that the majority of people pay off their loans during or around the end of the repayment period and that the loans do not spiral into huge unmanageable debts.
Be warned though, it all depends on your circumstances but things can easily get out of hand!
Are you struggling to pay your pay day loan?
If you are still struggling to pay your payday loan then get some professional help sooner rather than later. We have a list of debt advice agencies that will help you free, this means no fees. See free debt help / advice agencies. They will not charge you fees for their help and advice and will cover all your debt options.