With budgets being tight, people are always looking for different ways to make their monthly wages go further, especially now Christmas is around the corner. In the past few years, payday lenders such as Wonga and QuickQuid have become popular due to their aggressive marketing tactics, but now people are beginning to realise their pitfalls.
Payday lenders let you borrow up to £1,000 for a short time, usually paid back within a month. The idea is to get people out of a tight spot when they have unexpected bills or their wages won’t cover their outgoings. However, it’s important to remember that these payday lenders are not strictly out to help you – they are businesses whose aim is to make money from you. This becomes apparent when you look at their annual interest rates, which can be up to 5853% of the amount borrowed. To put that into perspective, the average APR (annual percentage rate) for credit cards is around 14%.
As a simple example, if you borrow £100 to buy a Christmas present and can’t afford to pay at the end of the 30 day period, the bill the next month will have almost doubled to £197. If you waited a year to pay it back, your original £100 loan would cost you almost £6,000 (which, incidentally, would have bought you 60 of those £100 Christmas presents).
Of course, these businesses are relying on you not being able to pay the money back, and the bills get harder to pay back with each passing day, which causes a debt spiral. By making the loans easily accessible, they target people with poor credit, but the irony is, loans from these companies will show up on your record and will damage your credit rating even further.
So, to avoid falling into the debt trap, it’s important to know where to turn when you’re short on money:
MSE is a great source of information if you’re thinking of getting a loan or credit card. The site includes articles that can help you choose the best course of action for borrowing if you have if bad credit. There’s also a friendly community on the forums who will provide support if you’re trying to pay off your debts or save money.
The CAB is a charity that provides free advice on money and legal issues. You can go to your local office to speak with an assessor, or use their online help site, which has specific advice sections about payday loans.
Similar to the CAB, the MAS provides useful advice on borrowing and spending. Their online tools, including the Christmas money planner and cut-back calculator can help you identify easy ways to save money.