You receive your monthly income and everything is going well. Debit orders go off and your debt repayments are also deducted from your account. You think you have enough money to get you through to the next pay date. But this doesn’t happen. You are now left with a massive shortfall for the rest of the month. 

So let’s break down a payday loan…

What is a Payday Loan?

According to Investopedia, a payday loan is a type of short-term loan whereby a lender will extend high-interest credit to the consumer. A payday loan is usually based on a single payment or can be extended over a 3 month period. But the longer you take to repay, the interest on the loan amount increases the repayment balance. Thus, resulting in you paying more when the time comes to settle the balance.

You opt for a Payday Loan 

Although payday loans may seem like a quick-fix option to bridge the gap in your shortfall. However, there are a number of hidden costs associated with this. These hidden costs are usually not presented to the consumer. Which results in you paying more than the actual loan amount. 

Why do consumers still use payday loans despite the consequences?

Consumers use payday loans for three reasons:

1. Borrowing from friends and family
2. Avoiding reducing expenses
3. Unexpected events

The true cost of a payday loan

30 day payback period

60 day payback period 

What happens when you don’t pay 

As a result, if you don’t pay your payday loans, according to WashingtonLawHelp, the lender will try to make contact with you to arrange for payment. If unsuccessful, they can impose further fees and penalties or send your account to a debt collection agency. In the end, you will be liable for the amount you borrowed, interest and fees, penalties, collection fees and possible court fees. 

What can I do to avoid a payday loan?

There are a number of ways you can avoid a payday loan. However, you can focus on sticking to a strict budget and if you find yourself in a tricky position, you can use one of the following methods:

• Cutting back on costs
• Selling items you do not use anymore
• Additional form of income

If you are currently struggling to repay any payday loans or debt, contact us and one of our financial experts will provide you with a free in-depth financial assessment and advice.