What you should be thinking about before applying for a payday loan

By Mr Bankruptcy

22nd September 2020

At a time when many people are feeling financial pressure it can be tempting to go for a quick fix to a short-term cash flow problem, but are payday loans the best option?

Why would you consider a payday loan?

Payday loans are known for being expensive in the long term but in an emergency when only a short-term loan is needed to tide you over, they can be very useful:

• They provide extra cash at short notice.
• You don’t necessarily need a good credit score.
• They can be paid off quickly.
• A loan can be arranged with minimal effort.
• Tighter regulation of payday loan companies ensures you can’t pay back more than twice what you originally borrowed.

What about the potential pitfalls?

Much of the bad press that has surrounded payday loans has centred around how costs can spiral if payments are missed, putting financially vulnerable people in an even worse position. Therefore, before considering a payday loan it’s important to do the following:

• Review the terms and conditions of the loan fully to understand the risk you are undertaking, particularly if you default on payments.
• Consider the interest rate and the impact it has on what you actually have to repay.
• Understand the impact that applying for payday loans can have on your credit file. It will remain for other lenders to see.
• Payday lenders arrange to take money directly from your bank account. Any additional charges you may incur and taken from your account may not leave enough for other bills or may leave you with overdraft costs.

The Money Advice Services states that for payday loans, over a year, the average annual percentage interest rate of charge (APR) could be up to 1,500% compared to 22.8% APR for a typical credit card*.  This highlights the challenge for some payday loan customers. If you have any concerns that you may not be able make the agreed repayments you should consider cheaper options.

If you find yourself regularly relying on short-term loans to manage cash shortfalls, it is time to reassess your budget and potentially seek advice to help address your debts to prevent them from increasing further.

James Rosa Associates

We are a team of debt advisors and debt adjustors. With a supportive and friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors who find themselves in the position of facing unmanageable debt or are involved in civil or commercial disputes. Our services include:

• Insolvency support
• Negotiated settlements
• Personal assisted bankruptcy
• Mediation

We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.

Find out if you qualify for a free consultation

If you want to deal with an unmanageable debt, or bring a dispute to a swift and cost-effective resolution, contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for a free consultation.

Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.