5 Things That Payday Lenders Will Never Tell You

Back in 2014, the turbulent reality of the largest payday lender in the UK, Wonga, unravelled. Following the unethical practices of promoting their product resulted in an increased number of complaints by payday borrowers that led the FCA to crack down on the lender by capping the interest rate at 0.8% per day.

Payday lenders have gained negative publicity because of their outrageously higher interest rates. These short-term loans have to be paid off in full on the due date. Interest rates and late payment fees will be added if not paid back on time. As a result, you will end up paying thousands of pounds.

Soon after the revelation that the lending company had lent even to those who would never be able to repay, it collapsed, but payday lending still exists. However, the scenario has changed ever since payday loans are still not sold at very attractive interest rates.

Why are payday loans expensive?

Payday loans can typically be between £50 and £1,000 with an APR of 1500%, which is not uncommon for them to have such a high APR. Many borrowers find payday loans way affordable as they ignore the relevance of the APR. As the interest rate is capped at 0.8% per day, you would pay £111.2 if you borrowed £100 for a period of 14 days.

But if you keep rolling over the loan for a full year, you will be paying £292 on top of £100, three times the original loan amount, thereby hanging a tale.

The APR involves the interest rates plus fees such as loan origination fees, monthly fees and so on. Therefore, 292% is the annual interest rate, but the real APR figure will be much bigger, which can go up to 1500% because of added fees.

Assuming that you took out £100 at an APR of 1500%, here is how much you will end up paying in total:

	After 14 days	30 days overdue	60 days overdue
Loan amount	£100	£100	£100
APR	1500%	1500%	1500%
Repaying amount	£157.53	£380.82 (£223.29+£157.53)	£504.11 (£346.58+£157.53)
Finance charge	57.53%	123.29%	246.58%
One-time late fees		£15	£15
Interest on late fees		£3.60	£7.2

Now you can see how the debt quickly adds up. Though it seems possible to have been able to pay off £157.53 after two weeks once and for all, you do not realise that your pocket failed to release £100, let alone £57.53 on top of that. Therefore, it is obvious that you will wind up rolling over the loan.

Things that payday lenders will never let you know

Here are the things that a payday lender would rather you did not know:

Payday loans can make your financial situation worse

Although payday loans are advertised as a quick fix, they can ruin your financial situation down the line if you fail to settle the debt on time. In case of an emergency, no other option seems to be faster than them, and you miscalculate your ability to repay.

Subsequently, you realise you cannot repay it on the due date and then roll over the loan. Seeing the rising cost of the debt, you decide to take out a larger loan to pay it back, and this cycle never ends.

Here are the tips if you have got payday debt up to your neck:

• Break the borrowing cycle and talk to a debt advisor.
• File a complaint to Financial Ombudsman Service if you suspect that you have been charged unethically.
• Talk to your lender to see if they can be ready to accept less than the due amount or come up with a payment plan.
• Repay only what you can afford.

Payday lenders will have access to your bank account

Payday lenders use CPA (Continuous Payment Authority) system, which means they will keep pulling money as long as there is a balance in your account. This can lead to another problem. As the balance goes below the minimum level, your bank charges overdraft fees daily.

You should immediately cancel the CPA if you have agreed to stop or make minimum payments. This is your right to cancel the automatic debit of money from your account.

You can do it on your own. However, if you find that payments have not been stopped, you should talk to your payday lender and ask them for a refund, and if it is still a no-go, you are free to complain against the lender.

The ramifications of missing payments will be dire

You know that you will be imposed late payment fees and interest penalties if you fall behind on payment, but the consequences are worse. Payday lenders will start chasing you through phone calls and text messages. They will keep charging fees and accruing interest.

Many borrowers have already complained about unethical payday lenders and that they follow an intimidating collection process. In fact, it has been observed that many lenders straightaway refuse to accept minimum payments that borrowers can afford. Instead of agreeing to the proposal, you will be forced to pay as per the original payment plan.

Customer service cannot be good when you have a problem

These loans can be processed quickly. Usually, the same day you put in the application. Still, when it comes to seeking help or asking anything about the payday loan, like interest rates and APRs, the customer care executive’s help does not amount to much.

Most of the borrowers find it hard to get the right support from the lender when they have a problem making payments.

Payday loans have alternatives

Payday loans are not the only loans. You can think of applying for various other alternatives when you come across an emergency. For instance, if your credit score is not so stellar, you can consider bad credit loans too.

• These loans are more affordable than payday loans. The APR is much lower.
• You can borrow a larger sum if you promise to pay down the debt on time.
• You will pay down the debt in instalments which helps improve your credit score.

Same day loans are also a form of payday loans, but they are offered at a lower interest rate than them. Some reputed direct lenders like PMLoans Day accepts payments in weekly instalments. This provides more flexibility, making them more affordable than payday loans.

Use caution when taking out payday loans

Payday loans are extortionate. You should take them out with utmost caution. Understand the impact of the APR on your finances. You should use these loans only when you are absolutely sure that you will pay them off on the due date.

Since they are convenient, you should not rebuff the need to make a budget. Tracking down your expenses can help you keep your money in a tight rein. If you have a debt trap, you should find a way to eliminate it. Talk to your lender if they can help you by revising a payment plan or accepting the dues in instalments, or you will need to talk to a debt management company.

The key to avoiding falling into debt is borrowing money only when you can afford it.