Payday loans, they are quick, easy ways to get a boost of cash. Easier to get than from banks, a million times quicker, and often the solution to just needing a little bit of money instead of a huge amount. Since the banks broke the world, fewer people trust in them, some people have no other choices for credit. However, payday loans have a dark side, and have even been called a form of “legal loan sharking” worth about 2 billion. The over use of these loans is becoming something of an epidemic in the UK. Why are these loans so dangerous and causing so much trouble?
This is the biggest part of a payday loan and what takes most by complete surprise. The interest on a normal loan is a small percent that you add to the payback of the loan over a period of time. Payday loans do not do this they have a large interest rate and are paid back in spans of days not years. This means that the interest owed on one can quickly come to be more than the cost of the original loan itself, this rarely happens with bank loans. This more than anything else lends to the vicious debt cycle. The interest rate is so high and accumulates so fast that this can be even worse than the debt cycle of credit cards.
Forty-nine percent, almost half of the users of payday loans are unable to meet the high cost of interest payments on their loans. The means they have to take out payday loans to pay back payday loans, this is how the cycle starts. Once this starts it is very hard to get out from under. There is no limit to the amount of money you can owe, and unlike loan sharks since these are legal they can force payment. The interest rates can be between 300 to 500% the loan and in payments as small as per day. Additional fees and penalties can push this up as high as 5000% over the life of the loan though. Payday loans on top of payday loans, even so 28 percent believe this kind of debt was necessary for them.
Even with this crushing and seemingly endless debt cycle, or the feeling of necessity to get a payday loan, it is possible to get out. Planning is the main key, these loans are considered high risk for the lenders they want the money back. By planning a tight budget and working with the lender for payment options or to get the interest down you can get out from under the boot of a payday loan cycle. There are also free organizations that can help people manage debt. Pay attention ask about the interest rate, the payment periods, know how much the loan will be to pay back before you get one and budget for it. In this way it is possible to avoid the debt cycle and get out. If you are one of the unlucky ones that feels a payday loan is necessary you may be able to avoid the debt cycle all together by being prepared. By knowing about the dark side you can know how to avoid it.