If you’ve found yourself needing a personal loan at one time or another, chances are high that you’ve probably heard of payday loans. Payday loans are advertised as quick cash solutions to your pressing financial needs. Approval is confirmed within the same day or sometimes instantly making it a go to unsecured personal loan for borrowers with bad credit.
While easy and super quick to avail, payday loans come with steep interest rates and hefty hidden charges. Even if lenders are supposedly taking high risks offering you a short term financing, borrowers in the end are still the ones at a disadvantage.
With payday loans, you can borrow from £100 to £1,000 payable in 28 days or on your next pay check. The loan amount is pretty small compared with other personal loans especially the secured ones but many borrowers continue to find it handy for a range of personal needs. If you’re overdue on your rent, for example, and you’ve exhausted cheaper alternatives, payday loans seem like the best way out. In some instances, payday loans do save the day but at a very high cost.
Payday loans in general come with a Rep APR of 1,000%. Take note, that’s just the representative APR. Most of the time, lenders charge more than said average making it hard for borrowers to pay for the loan. Since the loan is tailored for people with bad credit and who earns the bare minimum wage, rather than offer help, the loan product has a tendency to trap borrowers in a debt cycle.
After repaying the loan with their paycheck, many borrowers are likely to take out a loan again seeing that their budget is short again. There have been many cases where borrowers were unable to repay the loan in the end escalating the loan’s interest further.
The fact that payday loans lead to a debt trap that’s often very difficult to get out of is the very reason why I don’t recommend payday loans. What good does quick cash do when in the end you suffer anyway?