In this quick fix, fast food, everything on-demand culture we
have become accustomed to getting exactly what we want and getting
it instantly. This trend has now passed on to the world of personal
finance in the form of payday loans. But whereas a Big Mac might
make you feel a bit queasy for a couple of hours, a payday loan can
send you into a never ending spiral of massive debt and
distress.
For the uninitiated, a "Payday" loan is a short-term loan worth
between £50 and £750 that tides you over until you next get paid by
your employer, at which point the loan is paid back in full in a
single payment. Sounds pretty reasonable so far right? That is
until you discover the typical APR on these loans regularly stands
at somewhere between 2,000% and 3,000% - a truly eye-watering and
shocking amount.
the typical APR on payday loans
regularly stands at somewhere between 2,000% and 3,000% - a truly
eye-watering and shocking amount.
This means that a loan of £200, for example, could end up
costing you £260. Ok, this doesn't sound too terrible at first but
the thing is with payday loans is that the repayment often causes a
hole in the borrower's finances for the following month, prompting
them to get out another payday loan, and then another etc. etc.. If
a payment is missed then the interest goes into overdrive,
ensnaring the borrower in a vicious circle leaving them thousands
of pounds of debt.
This Payday loan trap has claimed scores of victims but
unfortunately it looks like nothing is really being done about it.
The companies continue to entice desperate people with slogans such
as "QUICK CASH" and "ALL APPLICATIONS ACCEPTED" while the
regulators look the other way.
In other parts of the world, however, the financial authorities
are putting the boot into underhanded payday loan companies.
For example, local governments in Canada have begun to cap
payday loan interest rates and fees so that the total cost of
borrowing can never exceed a certain amount. In Quebec they have
limited APR to 35%, effectively putting payday loan lenders out of
business.
As evidenced by the payment protection insurance and mortgage
endowment scandals (to name two), the regulators in this country
usually take so long to close the stable doors that not only has
the horse bolted but is probably retired in Spain somewhere. Let's
hope the government sits up and notices the growing menace of
payday loans before it's too late and thousands more people are
sucked into a world of debt hell.
If you are already struggling as a result of payday loans then
please consult our guide for tips and advice on how
to escape your debt nightmare.
Claims Financial
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