No one takes a payday loan out of choice, they take it because they’re forced to or are unaware of other alternatives. With high interest rate you could be left paying back double what you borrowed. However; consumers have been warned that severe debt problems are likely to arise as a consequence of taking out payday loans. According to a CFA survey of one hundred Internet payday loan sites, small loans involving electronic access to consumers’ checking accounts pose high risks to consumers who borrow money by transmitting personal financial information via the Internet.
Failure to pay back the loan on time will create a “difficult situation” in which the interest and amount owed piles up. The comments come after PricewaterhouseCoopers’ Precious Plastic 2012 report was published this month, showing that while consumers are spending less on credit cards – which in some cases may be due to bad credit that stops them applying successfully – many are increasingly turning to alternatives like payday loans.
Also don’t be fooled by companies who only quote what a loan will cost you in pounds and pennies. Take out a typical payday loan and you could find yourself being charged at a rate of anything between 1,600 % and 2,700%. All the more shocking when you consider that personal loans from your average high street lender are available for as little as 9% APR.
Not only this you could also find your debt spiralling out of control. Just as payday loans are quick and easy to take out, they’re also very easy to defer. Most lenders will happily allow you to roll your borrowing over from one month to the next. However, fail to pay off your payday loan in one go and you are running the serious risk of your debt spiraling out of control.You will continue to accumulate interest at an astronomical rate for each subsequent month that you allow your loan to rollover. Within a matter of months you could find that you have ended up paying more than the original amount you borrowed in interest alone.
So if you are in the position where you are considering a payday loan then it is often a good indicator that your are already living well beyond your means. If that is the case, then is it really a good idea to be saddling yourself with even more debt?