Using a payday loan to get yourself out of debt is generally going to land you in more debt and you will fall into a cycle which is almost impossible to escape. At WB Debtcare, we want to help you understand the issues with payday loads and offer an alternative to getting out of debt.
Payday Loans Are Expensive
First and foremost, payday loans are incredibly expensive due to the extremely high interest rates. In fact, the average payday loan has an interest rate of around 400%, but this can be significantly higher, for example, a certain loan company has a representative APR of 1575%. Considering credit cards typically have an APR somewhere between 10% and 30%, these interest rates are terrifyingly high.
By borrowing a small amount of money, you are likely going to have to pay back even more than you could afford in the first place. Furthermore, payday loans, generally, have to be paid back within a number of months, or even days, meaning you have to pay back huge amounts of money in an incredibly short space of time.
Your Debt Will Continue to Increase (and Fast!)
Due to the high interest rates put on these payday loans, it is likely that you will only increase your debt rather than reduce it. For example, taking out a payday loan of £100 for 35 days with a well known provider, will result in you paying back £128, however, additional charges and interest rates are then charged if you fail to pay back the loan on time. Failing to pay back these loans on time means your debt is going to accumulate very quickly and you can very easily lose control.
Stuck in the Cycle
Due to the high interest rates, a payday loan is likely to result in more debt. As you find yourself in more debt, you may turn to more payday loans, resulting in more and more debt, leaving you in an out of control cycle. This cycle of debt can be terrifying and it can often seem like there is no way to escape.
Paying Off Your Payday Loan
Payday loan companies tend to take your bank details when you sign up, and this may involve setting up a direct debit payment to pay back your loan. Often, this payment is set up “for your convenience”, but if you are unable to afford the repayment, it can be challenging to stop the money from coming out of your account. As the company now has access to your account they are likely to take it on the agreed date whether you have the money or not, this may involve going into your overdraught. By taking money from your overdraught you are just opening yourself up to more debt as you struggle to pay back the interest rates on your credit card.
In some cases, payday loan companies will take their money back, no matter what it takes. Whether they seize some of your possessions or by charging you a hefty fee for failing to payback the loan. Ultimately, the consequences can be pretty nasty, but people often see no other way of getting out of debt.
Where can I turn?
If you are looking to escape debt and pay off your debt affordably and effectively, then get in touch today, we would love to hear from you.