According to a recent study by Consumer Focus, over one million payday loans were taken out in the UK in 2009 – a four-fold increase from just four years before. With typical interest rates of between 1,000 and 5,000 percent, more than £1 billion was lent in this way that year. Interest accrues daily from the moment a loan agreement is signed, and there are some considerable consequences if someone cannot pay back the loan on the agreed date.
While this type of easy-access credit may seem like the only option to people who need short-term loans, it can quickly lead to a spiral of debt that can be difficult to break free from.
There are some people who will say that payday loans worked for them, and in many cases this is certainly true. An urgent car repair, the fixing of a boiler or any unexpected expense can leave people with few options, and a short-term loan can actually be a cost-effective way of borrowing small amounts of cash when compared with overdraft arrangement fees.
Consumers are presented with the option of paying back the initial loan amount plus around £10 to £15 for every £100 borrowed. Now, this may sound like a small price to pay for meeting an urgent need for cash, but problems arise when payday loan providers offer people the chance to defer payment.
Insolvency specialists R3 claim that over three million people took out a payday loan in 2011, but how many of them realised that interest accrues on a daily basis? If a loan is repaid on time, the consumer has nothing to worry about, but what happens if something else happens that requires extra cash before the repayment date?
Deferment of payday loans comes at a price – an initial payment of interest and a daily accrual of further interest charges until the loan is repaid in full. The principle of compound interest could mean that what was once a modest loan becomes too large to repay.
Millions of people have discovered the pitfalls of using short-term loan providers for long-term needs over the last decade, and the easy way out for many is often applying for funds from other lenders to repay existing debts. This form of financial plate-spinning cannot be sustained indefinitely, and people eventually run out of places to go for help. This, of course, is when the threatening letters and threats of legal action commence – a time when seeking advice from debt help specialists becomes essential.
Thankfully, consumers can now seek help with payday loans from expert advisors who have many years’ of experience in dealing with credit providers of all types. Payday loan debt accrues interest daily until it is paid, and the problem will simply get more serious until interest charges are frozen – something a debt help specialist may be able to arrange. It may also be possible to have debt repayments structured on the basis of the debtor’s ability to pay. If you’re in this position, the first step is to simply ask for help.
Of course, there is a stigma attached to debt problems, and no one wants to appear helpless and foolish. But a sympathetic debt specialist can fight your corner with all of your creditors, and that can allow you to start building a life free from the chains of debt.
1st Point Debt Solutions offers debt management solutions to help you resolve your debt problems. If you require help on your payday loan debt, please visit their website.