Tips and Tricks in Overcoming Payday Loan Cons
Payday loans, because it's fast and convenient, have been helping thousands of people get by rough financial patches. It's currently one of the hottest unsecured type of loans available in UK today. But while it has its advantages, it also comes with disadvantages which every borrower should be aware of before applying.
One of the main disadvantages of payday loans is the high annual percentage rate (APR). Most lenders in UK offer loans at 1,000% APR or more. If only for short term purposes, the amount is still expensive but manageable. However, once you start missing or delaying on payments, the cost can add up due to penalties and extra interest. If it continues to happen, you may end up in greater debt because of the high interest.
When applying for a payday loan, make sure to shop around and compare your options. You can even use comparison sites to make the job easier and more efficient.
Lack of Transparency
Another pitfall that draws criticisms is the lack of transparency in lender's terms and conditions. Some companies are luring customers with empty promises and unclear guidelines. Consumers who really need the money are sucked into borrowing without knowing that there are hidden charges and fees that await them.
To avoid hidden charges, always read the fine print. Some lenders advertise selectively only telling you the good promises without really giving you a clear picture of the overall cost. But like any responsible borrower, it is your job to investigate further to steer clear from dubious charges.
The Risks of Rollovers
With payday loans, terms are shorter usually just 30 days or sometimes up to 3 months depending on your lender and the amount. Unfortunately, there are always instances when borrowers lack the funds to make payments on time. When this happens, lenders usually offer a new arrangement in the form of a loan rollover. This just means that the duration of the original loan is made longer so you'll have ample time to pay off the debt. This also translates to extra interest, charges and other fees.
To proactively avoid loan rollovers, you need to do it before taking a loan. That is, you need to borrow only what you need and what you can afford. Before signing any agreement, check you budget and ask a free quote from your lender of choices. If the total due is something you cannot manage, do not continue with the loans. Instead, decrease the amount to what you can only afford.
Because payday loans are easy money, another worry that borrowers should actively fight is the cycle of debt. Borrowing once is okay but doing so month after month is not practical or financially beneficial anymore. Either way you look at it, you’ll only end up with greater liabilities because of the high interest.
To keep away from the debt trap, resolve to only borrow once and only when you’ve exhausted other cheaper alternatives. To help you look at other options, Responsible Lending has an exhaustive list for you to check.