Read about the dangers of payday loans and what happens if you can’t pay what you owe.
Payday Loan Debt - Help and Guidance
These smaller “quick fix” loans can help finances until payday but must be repaid in full the following month to avoid huge interest rates and charges.
What Is a Payday Loan?
A payday loan is a short-term, high-interest loan from as little as £50. Payday loans can often seem like a good way to make it to the end of the month or cover an unplanned expense, such as vehicle maintenance or home repair. However, the dangers of payday loans should be noted before you proceed.
The Dangers of Payday Loans
When you’re struggling to make ends meet month to month, a payday loan can sometimes seem like a lifeline. But most experts will advise against them and here’s why:
- High-interest rates
Payday lenders will charge the highest interest rates. Although new laws have been introduced to cap the interest at 0.8% per day, you could end up paying back double what you borrowed.
- Very short repayment periods
Most payday loan lenders will expect that payment is made in full by the end of the month or on your next payday. Failure to do so can mean that you are subject to penalties.
- The small print
The terms and conditions of payday loans can often catch people out when they assume that they work in the same way as a normal loan. Always be sure to check the terms and conditions.
- Access to your bank account
Charges that may have been hidden in the small print can be deducted from your bank account when you’re not expecting it. This can have a knock-on effect on your financial situation getting you further into debt.
What Happens If I Can’t Pay My Payday Loan?
Payday loans can cause real issues with your ongoing finances and impact your spending for months, sometimes even longer. If you fail to meet payments, it could have a serious effect on your credit file too.
Some payday loan lenders allow you to rollover your repayments into another month. However, this will most likely increase interest rates — making your debt larger. You also have the option of “payday loan consolidation”. This is essentially a larger payday loan used to repay your existing loans. A payday loan consolidation will only provide very short-term relief because the original issue remains the same while interest rates are still high.
If you fail to make repayments, your payday loan lender will begin proceedings to recover the money owed. They will try to contact you initially, but if they are unsuccessful in getting the payment from you directly, they will likely enlist the help of a collection agency. This can become very stressful as you will receive regular demands for money while your interest charges continue to rise. If the debt collection agency is also unsuccessful, your debt may be passed on to bailiffs and your assets could be at risk of being sold to pay the money owed.