Salary loans can be an attractive way to get instant cash and quick credit, but we will show you how risky they are with high interest rates and extortion schemes, and look at alternative ways.
What Is Mean By Payday Loans?
Small loans (under 1,000) are short-term loans with funds guaranteed by your next paycheck. Most seven-day loans last a maximum of 31 days, some only seven days.
Getting a payday loan online is easy. For example, to apply with Txt loan you only need to provide some basic details including your bank account details. They demand that you register once and then you can send a text message and you will receive instant money in your bank account.
The only conditions with these are that you must be a UK resident, at least 18 years old, working and earning at least $ 400 per month and you must have a valid bank account, mobile phone and email address. However, they usually do not lend to anyone who has a CCJ or has been bankrupt for the past 18 months.
The payroll loan industry has really shunned after the debt crisis. According to a report by Consumer Focus, the number of payroll borrowers has quadrupled in the last four years.
The popularity of payday loans is understandable – the problem with the unsecured credit market is that lenders are now really, really interested in who they lend to. Anyone with a credit rating defect can be excluded from major lenders, meaning that for some there is no one other than payday lenders.
The problem is, these loans have extortionate rates and it is very easy to create a terrible debt burden if you can’t pay it off immediately. Even if you can pay off the loan quickly, it still costs a staggering amount of interest.
How Much These Loans Cost?
At face value, some salary loans may seem like an attractive deal.
For example, in Txt loan, you pay interest 17 interest on a £ 100 loan and repay it after 15 days. It is cheaper than some unauthorized overdraft bank account fees. However, with a hefty 4474% APR and a கட்டணம் 1 handling fee per text (see here), this deal is not so great.
Thames Financial payday loans offer payroll loans ranging from pay 50 to 750. They act as a broker, looking for multiple providers on your behalf. So the terms and conditions you receive from Thames Financial vary because they deal with different types of lenders. No matter what deal they come up with, always check the small print – especially the APR rate, because it can be very high.
Quidtil payday offers instant loans ranging from 80 to 750. Like Thames Accounting, regular APR varies – check it out!
Payday finder offers instant loans ranging from 80 to 750. On an AP 100 loan you will repay 125, with the regular APR being 1770% larger.
The usual APR on Wonga.com is an eye-watering 4,214% APR. There is a 50 5.50 transfer fee to pay, but the total cost depends on how long you want the loan. For example, if you want £ 100 for more than 7 days you have to repay 2 112.78, but if you want to pay more than 31 days you have to repay 7 137.76.
It is true that these APRs (annual percentage rates) are misleading as they are used to calculate interest for more than 12 months – which is not very helpful when the payday loan period is not more than 31 days. See here for Wonga’s explanation of why payroll loan APRs are so high.
However, the use of payday loans serves as a reminder that APRs are still the most expensive way to borrow money from a credit card, and if you trust them they may start to leave a bigger credit problem than you.
The other problem with salary loans is that the entire amount is repaid at once, which can put you in a similar position for the next month. So, when you find that you are not able to repay the loan, when the big fees start to go bad.
What Can Happen IF Someone Can’t Repay The Loan?
If you are unable to repay the loan, you will soon be in big trouble. This is where the nails come out and the payroll companies start making their money.
If after 15 days on Txt loan they are unable to withdraw money from your account, you will be immediately charged with:
Day 17: They send out the first late reminder including over 25 admin fees and daily interest charges 13 1.13, now the loan total is 3 143.13
Day 27: Over 25 Second late reminder including administration and interest rate, loan now stands at 9 179.47 Total
Day 45: Loan total 199.87
Day 46: They refer the loan to a debt collection company, which incurs an additional £ 47 administrative fee and transaction fee. The loan total is 7 247, and you will have to pay extra fees to that company.
Worse still, Txt loan will try to withdraw money from your bank account during this period, so you may face charges from your bank every time the funds increase otherwise the transaction increases, typically 20 – £ 40 a trip.
If the first missed fee on Vonga.com is £ 20 and then £ 17.50 they are unable to pay by 5pm on the same day, the matter will be sent immediately to a collection company. However, one good thing is that you will not be charged continuously until you repay (unlike others), but you will pay interest up to 60 days on your balance.
There are some real horror stories about people using payday loans, not being able to repay on time and ending up in a real mess – here are some posts about Cash Genie that make for a bad read.
Why You Need to Steer Clear?
The problem with any short-term loan or payday loan is that you don’t really solve the real problem – if you find it difficult to pay your bills every month and your paycheck doesn’t cover all your expenses, payday loans are the worst things to do alone.
If you are determined to take out a payday loan, you should only do this to cover the emergency and only when you are confident that you can repay it within the agreed time. With high APRs like this and comprehensive fees for late payments, it can be easy to see that using a payday loan can overwhelm your credit control, so they really should be a last resort.
Some Alternatives to Payday Loans
Now that we (hopefully!) Have put aside the idea of a payday loan, look at some alternative ways to borrow money:
0% Credit Card: Use 0% credit card for interest free expenses if you have sufficient credit record to get 0% contract (check your record here before applying). It is basically an interest free loan until you clear the outstanding amount within the introductory period. The Tesco Club Card credit card (regular 18.9% APR) offers the longest 0% grace period for purchases in 16 months. Among other great purchases, Sainsbury’s credit card offers six months for the first 15 months of balance transfers and purchases and 12 months with Virgin 12/12 card for purchases and balance transactions at 0% rate.
A bank account overdraft: If your credit rating is good, you can also borrow cheaply on the approved overdraft in your bank account. For example, Santander’s preferred overdraft rate account offers 12 months of 0% overdraft until you convert all your direct debits and pay 1,000 per month.
Social Credit: Ignore the banks altogether and beat them up by borrowing from your peers instead! Sofa is the first online financial marketplace that brings together individual borrowers and lenders. As a SOBA member you will be placed in the ‘risk category’ by checking the loan and applying for the best fees for the applicants who can get more loans. Get all the details to become a sofa borrower here. Also, find out more about other social credit sites like Yes-Secure here.
Credit Unions: These are our favorite options. Credit unions are somewhere between a bank and a cooperative. The idea behind the credit union is like a sofa, the credit union benefits mutual buyers and savers. Members save their money to the union for a good, reliable income, and that money is given to other members at an affordable price. So lenders get good interest rates on their money, and borrowers do not have to pay over the roof for the loan.
You must be an established member of a credit union and have already set up a savings account before you can get a loan, so find one near you on the Find Your Credit Union website. Seriously, credit unions are a fantastic option for anyone, but especially if you are struggling. Go now and find your local one.
Online Pound Brokers: A pound broker is rarely a great first option if you want to raise money, but they are generally better than payday lenders. Online pound brokers like 62days.com offer low interest rates and there is no penalty for early repayment, which is worth considering as a quick fix. Pound brokers work by giving you a percentage of the value of a particular item (mostly jewelry) over a period of time, during which the lender receives interest and you can repay the loan at maturity, and repay the interest and your item. The loan is protected against the item you handed over, so if you do not repay the loan, they have that item. 62 days still offers the best deal because it will allow you to sell an item to them, even if it is less than what you would say to a jewelry store or eBay, but you have the option to repurchase it within 62 days for the price.
Let Get Started
It is helpful to check your credit rating first whenever you apply for funding. Go to one of the credit reference agencies to get a copy of your record – you can get a 30 day free subscription to Credit expert – to find out where any problems are and correct any mistakes. If your rating is bad, there are many ways you can improve it, which will help you access better interest rates and deals.
If you often get into debt, we have some tips for getting your bank account back in black.
If you are really having trouble making a decision, take the time to make sure you are claiming all the benefits you are entitled to – you can do this in minutes with Turn2Userge. You can talk to free loan charities to get some help on a budget. See National Debt line, Citizen Service and Consumer Credit Advice.