Payday loans are very popular in the UK as they offer easy, quick, and straightforward relief to financial stress. All it takes is an online application and confirmation call to acquire payday loans, which are transferred to your bank account in 1 hour, 24 hours, or 48 hours. So basically, there are instant loans that you can borrow, even in cases where you have a bad credit score.
However, there are some common pitfalls of payday loans that all borrowers must be familiar with by now. Many people end up in the vicious debt cycle because they fail to realise that payday loans also have other charges and fees attached to them which can significantly add up if they don’t repay them on time or in full. Let’s take a look at the pitfalls of payday loans that can help you make the right decision when in need.
The Downsides of Payday Loans
One of the major concerns regarding payday loans is that the borrower is required to repay the amount within the month of transaction or when they get their next paycheque. Now remember, that since payday loans are for small amounts, the interest rates are significantly higher than the average loans and range from 10% to 30%.
So basically, if you fail to clear the loan after your next paycheque, then you are likely going to have to bear higher interest rates, as well as the additional costs and fees associated with the loan, which may or may not increase, depending on the terms and conditions of the lender for approving the loan and lending you the amount.
As the payback period is up to 30 days for payday loans, if you fail to pay during this period, the interest rate charged may double by the time you get your next paycheque. Hence, it is strongly advised that people who are already in debt should not use payday loans, especially for debt consolidation, because in this way, you are only getting yourself stuck deeper in the debt cycle.
It is also worth mentioning that since payday loans have become so easy to acquire online, there are instances where a person may become a victim of fraud. Hence, it is recommended that borrowers do thorough research and verify the lending source when obtaining payday loans online.
People with no regular source of income or job stability should avoid getting payday loans at all costs. Also, people with no checking account cannot secure a loan as they are not able to write a cheque. If one or both of the aforementioned cases are applicable to you, then it is better if you ask your friends and family to lend you some money for the time being rather than being tied with a loan. Last but not the least, if your financial needs outweigh the amount you may receive from different lenders, then it is best to consider other financial instruments rather than a payday loan.