What you should know about the dangers of payday loans

Payday lenders will try to lure you into taking up a short-term loan, but in many cases this will be to your detriment

08:05 05 October 2013

At first, payday loans were considered an important product, covering a certain segment of the market that customers really needed. But since the global financial crisis, it has been discovered that most of these loans are in fact irresponsible, and lead to clients not being able to repay them.

Here are some of the reasons why people usually take on payday loans and the dangers involved in that:

• payday loans are generally seen as a good alternative to bank overdrafts by clients, but the fact is that overdrafts are more secure and cheaper than payday loans, although they have high interest rates;

 

• People go for payday loans when they know their cash will not stretch till the month end. This type of loan is one of the shortest-term products available on the market, and it can be offered to almost anybody. Though these companies offer quick access to cash, their service is far from acceptable and is a picture of poor practice.

 

• payday loans however are not the best way to deal with bills and such payments, as most often the penalties you would have to pay will be lower than the interest you end up paying for a payday loan. If possible, you can pay the bill when you receive your salary instead of borrowing;

 

• Some payday loan lenders reportedly charge interest on interest, and fail to advise the borrowers.

 

• The payday loans are not the only product of its kind on the market anymore. Many banks nowadays offer small loans on short periods of time, and some of them have better prices and terms, and are generally more secure;

It is estimated that over two million people in the UK have taken a payday loan at least once in their life, most of them being males and having a salary of about £1000 a month. So try to avoid payday loans as much as possible. Perhaps, if need be, you can turn to a relative or close friends who could help you with unforeseen payments.