what is a payday loan
TRANSCRIPT
PAYDAY LOANS ARE
WAYS TO BORROW
MONEY SHORT-TERM,
DESIGNED TO GIVE
YOU CASH TO TIDE
YOU OVER UNTIL YOUR
NEXT PAYDAY.
TYPICALLY YOU’LL BE
ABLE TO BORROW THE
AMOUNT YOU GET
PAID PER MONTH UP
TO £1,000 AND THEN
PAY THE MONEY BACK
AT THE END OF THE
MONTH.
THE PAYDAY LOAN BUSINESS IS WORTH
AROUND £2BN PER YEAR AND IS
GROWING RAPIDLY. THEIR POPULARITY
IS LARGELY DUE TO 2 REASONS
MOST COMPANIES WILL
GRANT A LOAN WITHOUT
REQUIRING YOU TO
HAVE A GOOD CREDIT
HISTORY – THIS IS
IMPORTANT BECAUSE
BANKS AND OTHER
TRADITIONAL LENDERS
HAVE BECOME STRICTER
SINCE THE CREDIT
CRUNCH BEGAN IN 2008.
TYPICALLY ALL YOU
NEED TO QUALIFY
FOR A PAYDAY LOAN
IS TO BE OVER 18
AND TO HAVE A
REGULAR MONTHLY
WAGES GOING INTO
YOUR BANK.
SECONDLY AFTER
APPLYING, THE MONEY
IS TRANSFERRED
QUICKLY, USUALLY IN
YOUR BANK BY THE
END OF THE DAY –
MAKING THE WHOLE
PROCESS SEEM QUICK
AND SIMPLE…
SO PAYDAY LOANS CAN BE VERY
TEMPTING FOR THOSE WHO NEED TO
TEMPORARILY TOP UP THEIR FUNDS,
AND COMBINED WITH MASS MEDIA
ADVERTISING MAKE THEM SEEM AN
ACCEPTABLE FORM OF FINANCE.
BUT BEWARE, WHILE
THEY MAY SEEM OK,
THERE ARE PLENTY OF
STRINGS ATTACHED
THAT COULD VERY
EASILY LAND YOU IN
TROUBLE.
WHILST PAYDAY
LOANS MAY SOUND
STRAIGHTFORWARD
AND RELATIVELY
HARMLESS, THERE
ARE A NUMBER OF
MAJOR ISSUES YOU’LL
NEED TO BE AWARE OF
BEFORE CONSIDERING
APPLYING FOR ONE.
FIRST, THE RATE OF
INTEREST CHARGED ON
YOUR BORROWING WILL BE
GIGANTIC COMPARED TO
ALMOST ANY OTHER KIND
OF BORROWING.
FOR EVERY £100 YOU
BORROW YOU’RE LIKELY
TO BE CHARGED £25 OR
MORE PER MONTH WHICH
WORKS OUT TO IN EXCESS
OF 1,000% APR.
EVEN THE MOST EXPENSIVE
CREDIT CARDS CHARGE
AROUND 30% APR, WHILE A
TYPICAL PERSONAL LOAN IS
LIKELY TO CHARGE YOU
AROUND 10% APR – MAKING
THE THOUSAND PLUS-
PERCENT APR OF A PAYDAY
LOAN OUTRAGEOUS IN
COMPARISON.
PAYDAY LENDERS ARE KEEN
TO POINT OUT THAT THEIR
LOANS ARE DESIGNED TO
BE ONLY SHORT TERM
(UP TO 1 MONTH) AND SO
SHOULDN’T BE COMPARED
WITH LONGER TERM
BORROWING.
THE SECOND BIG DRAWBACK
OF TAKING OUT A PAYDAY
LOAN IS HOW DANGEROUSLY
EASY IT IS TO ROLL YOUR
LOAN OVER FROM ONE
MONTH TO THE NEXT, WHICH
VERY QUICKLY INCREASES
THE AMOUNT REPAYABLE.
FOR EXAMPLE YOU MIGHT TAKE OUT A LOAN OF
£1,000, WHICH WITH INTEREST ADDED COULD MEAN
YOU NEED TO REPAY £1,250 ON YOUR NEXT PAYDAY
(ASSUMING £25 IS CHARGED PER £100).
WHEN YOU GET TO
PAYDAY YOU MAY NOT
HAVE ENOUGH FUNDS TO
COVER THIS REPAYMENT
IN FULL, IN WHICH CASE
IT’S EASY TO SIMPLY
ROLL YOUR LOAN OVER
TO THE NEXT MONTH.
PROBLEM IS BY YOUR
NEXT PAYDAY YOU’LL
OWE EVEN MORE,
MAKING YOUR INITIAL
£1,000 BORROWING
MORE LIKE £1550, AND
THE AMOUNT REPAYABLE
CAN QUICKLY SNOWBALL
INTO A DEBT YOU CAN’T
DEAL WITH.
CREDIT REFERENCE
AGENCIES SUCH AS
EXPERIAN OR EQUIFAX ARE
MOVING TOWARDS LISTING
PAYDAY LOANS SEPARATELY
ON CREDIT REPORTS AND
MANY MAINSTREAM
LENDERS ARE NOW
LOOKING AT THIS WHEN
YOU APPLY FOR FINANCE.
THIS MEANS THAT YOU
MAY FIND IT MORE
DIFFICULT TO BORROW
MONEY IN THE FUTURE
FOR CREDIT CARDS,
CAR LOANS OR
MORTGAGES.
RECAP
Payday lenders make
short term, high
interest loans
Dangers exist if you
don’t pay them back in
full on time
Massive interest rates
mean that debts can
spiral out of control
They offer a tempting
solution for those who
cannot get credit elsewhere
But can leave a
negative ‘footprint’ on
your credit file
Thank You !For more interactive Financial Education
please visit
http://personalfinanceacademy.co.uk