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Things To Look Out For With Payday Loans

by Jim ONeil on May 9, 2011

in Payday Loans News

High-cost credit like doorstep and payday loans may be the only option for someone with poor credit. People who are already in debt must be careful when taking out these loans. On average, those who use payday loans take advantage of them 3.5 times per year.

Before applying for these, consumers should consider all other options and relevant costs.

This sector is not characterized by much competition, which is great for lenders. However, many borrowers are desperate to use the money to consolidate or get out of debt, which is bad for these consumers. In some cases, debt counseling may be a better option. Consumers should understand the full financial impact of this type of financing before they complete an application.

Consumer Focus reports that payday loan interest usually ranges from £13 to £18 for every £100 borrowed. However, other research reveals that some lenders charge up to £20 per £100, resulting in a 1,000 to 2,000 percent APR.

If the debt is repaid quickly, the impact is not as severe but many people are not able to repay the loan by the following month.

Failure to repay as intended is when the problem arises and the situation can get out of hand. Due to the credit crisis, short-term borrowing is in high demand, despite large associated interest rates. Marie Burton with Consumer Focus states that these expensive rates create a debt trap for consumers who take out multiple loans or defer payments.

The result of deferring is that a person could end up paying more than double the original cost of the loan. Some lenders do not permit deferrals, placing cash-strapped borrowers in an uncomfortable situation. Consumers have reported being treated poorly by lenders when they had difficulty repaying, making it important that people know their options and determine the best solution before getting themselves into such a situation.

ckm1956

If anyone offers to loan you money without a credit check, run away. They'll nail you with the interest.

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