Payday loans can be a rough ride there is no doubt about that. If you’re in a position to have to take out one of these high-interest tools, then clearly you’ve missed a few basic personal finance steps along the way. Does that mean that you should be sentenced to being taken advantage of by payday loan companies for the rest of time though? Absolutely not, the only thing I find more astonishing than the extraordinary amount of interest applied to a payday loan is overwhelming amount of charges that can be applied to an account in arrears.
What will I have to pay back?
The concept of a payday loan is quite simple really: the borrower will choose how much they would like to borrow and how long for on the basis that they repay this ‘micro-loan’ on the agreed date plus whatever interest the lender applies to it. This can work perfectly fine if you disregard the astronomical rates of interest these companies can command. Let’s take a look at Wonga.com, one of the leading companies in payday loans, as an example; if I borrow $200 over 30 days this could cost me $66.31, that’s pretty much 1/3 of what I initially borrowed!
What else will I have to pay back?
Charges explained
If you fail to pay back your loan plus the interest by the agreed date you will most likely find that the company you have borrowed from will have applied charges to your account that can be very excessive and can continue to be charged for a long period of time. Going back to our big player, Wonga, as an example the charges they will apply to an account in arrears works out at about $2 a day, that seems reasonable, right? Not at all, Wonga say that they will continue to charge this fee for 60 days before stopping.That means that for 60 days you could find yourself paying an APR of a whopping 4,214%! So if I wait 2 months before repaying my $200 payday loan I’ll end up owing back a total of $386.31. That’s almost double what I would have initially borrowed.
What if I can’t repay them?
If you find yourself in the position where you just can’t afford to pay back your payday loan, seek professional advice. With a free, no obligation advice service, your debt expert have a team of experienced debt management professionals that can help you on your way to financial stability. Try the debt calculator from Your Debt Expert if you aren’t sure if you need help. The solution for you may be as simple as applying for a credit card. But don’t worry if you are unable to obtain credit from a bank, there may still be a solution for you for example, a Debt Arrangement Scheme or a DAS. This can freeze the interest on your loans and allow you time to repay your debts comfortably. All of the debt solutions we offer are judged on an individual basis so if you feel like you need help don’t hesitate to contact us directly.
You can find more about Peter Dean on Twitter @peterdean_debt