Their adverts are everywhere, and at the end of the month when money’s tight it’s very tempting to think that a payday loan could help make things easier. Before you do that, though, check out these
five incredible facts about them.
They account for one-third of people in debt problems
Research carried out for ITV’s Tonight programme found that around one-third of the people visiting a debt advice service were there because of their use of payday loans. This is more than than were there for any other form of debt. If you’ve already got other debts and are using payday loans to cover them, it may be better to go get debt advice now, rather than going even deeper into debt without a plan to get out of it.
Two-thirds of users don’t know how much they cost
The same survey for Tonight found that 69% of people with payday loans didn’t know how much the interest on their loan was. If you’re ever going to take out a loan, this is the first thing you ought to ask about and know! One key way people get into trouble with these loans is not anticipating how much they’re going to have to repay, and for how long. Don’t ever take out a loan without asking what the interest rate is and seeing a repayment plan.
The interest rates can cripple you
The cost of a loan is measured using an Annual Percentage Rate – the amount the total you owe would go up in a year if you repaid none of it. For instance, the APR on a mortgage is currently around 4 or 5%, regular credit cards have APRs around 20% and store cards tend to charge APRs around 30%.
Payday loan APRs are over 1000%, with some charging an amazing 4214% APR. If you owed them £1000 for a year, by that end of that year your total debt would be a staggering £43,140. After two years, you’d owe them almost £2 million, and in a little over five years your total debt to them would be over £1 trillion. That’s more than the British government owes in total!
Over £1billion of payday loans are made each year
That’s according to figures from the Consumer Finance Association, which is equivalent to over £15 being borrowed by every man, woman and child in the UK as a payday loan. That’s a lot of interest being earned by the payday loan companies.
Most loans are just to help people get by
All the studies into payday loans have shown that the majority of money being borrowed is used to pay for essentials, like food, clothing and fuel. People taking out these loans are doing it because they need to, not realising just how much debt they’re getting into as a result.
Hopefully, these facts will have enlightened you about payday loans, and will give you something to think about if you’re ever tempted to take one out for yourself.