Hidden dangers of payday loans
IF your bank balance has plunged lower than the chilly winter temperatures,
you are not alone.
With a debt hangover from the Christmas period, more and more people are
looking at ways of getting their hands on cash.
But if you are considering a so-called payday loan, be warned – they have
serious hidden dangers.
This new breed of short-term loan is designed to tide you over until your next
wage packet, which you can then use to pay off your debt.
But these financial “saviours” are loaded with a staggeringly high interest
rate so if you don’t pay off the balance by the end of each month, you get
clobbered with a huge interest payment.
In the run-up to Christmas, more than four times as many people applied for a
payday loan than in all of November. Ferratum, an online microloan lender,
says the majority of people applying for loans are aged 18 to 35 and more
than 60 per cent are women.
Worryingly, many of these companies are aiming their loans at vulnerable
ladies.
One company, loansforwomen.org.uk, use the tag: “As we understand that being a
woman you do not enjoy all the privileges enjoyed by a man, we make it lot
easier and cheaper for you to get the loan.”
People are not just taking out these dangerous loans for essential things like
paying the rent or food bills – some use them for shopping trips and nights
out.
The Debt Advice Foundation says one in ten people who use a payday loan
admitted it was for something they didn’t need.
One of the biggest loan companies, Wonga, has a representative APR of 4,214
per cent. In comparison, regular banks and building societies charge up to
an average eight per cent APR.
Although this may seem like daylight robbery, these companies work within the
law and in no time your loan can spiral out of control.
The number of people running into debt through payday loans has quadrupled in
two years, say the Citizens Advice Bureau.
A spokesperson for Wonga.com said: “Our service is designed to help solve
occasional, short-term cash needs, which is something we help thousands do
every month.
“Using APR with a loan of a few days or weeks is a bit like trying to measure
internet speed in horsepower, because it’s not designed for the job.
“The true cost is made very clear up front and the feedback we get is
overwhelmingly positive.”
Two women who know the damage these payday loans can do are Suzanne
Alexandria and Nicky Belgrove. Suzanne tells how payday loans left her
fighting depression, while Nicky explains the agony of losing her home.
WORRIED about payday loans? Call The Sun TODAY on 020 7782 4063 between
10.30am and 6pm and speak to a professional from the Debt Advice Foundation.
NICKY took out three payday loans from November 2008 to February 2009 but
had no idea how dangerously in debt she would become. The interior designer
ended up owing 3,000 and had to leave her job in Southampton to live with
her parents in Birmingham as the loan payments left her facing homelessness.
Nicky says:
“I first took out a payday loan in November 2008. I had rented a flat and an
unexpected bill for 150 came through.
My bank balance couldn’t cover it at the time and I didn’t want to ask my
parents so I thought a payday loan would be the best solution. I typed the
word into Google and was directed to a website. It was very easy to request
the loan amount and they didn’t carry out any credit checks before they lent
the money.
The money was in my account within ten minutes.
I paid the bill and planned to pay off the loan when I was paid but by this
time the interest rate meant I was paying off only a third of the original
amount.
Having to pay off 250 with Christmas approaching, my bank balance was
suffering. Needing funds for presents I borrowed another 200.
The new loan increased the money I owed and with repayments due every week I
was struggling to get by. I took out another 200 in the New Year in a
desperate attempt to clear the repayments from the previous loans but things
escalated. I was missing payments because I could not manage my outgoings.
The loan companies called in their debts after three months of building
interest rates, leaving me on the verge of bankruptcy.
Terrified I managed to set up a payment plan of around 50 a month with the
loan companies but still had to pay the astronomical interest and late
fines.
These payments meant I couldn’t make rent or bill payments.
At breaking point and terrified of losing everything, I was forced to move
back to my parents’ house to prevent myself becoming homeless. I was forced
to leave my interior design job in Hampshire as I needed to relocate to
Birmingham where my family lived.
For six months I was unemployed and desperately trying to find work to pay my
debts.
From the three payday loans which totalled 550, I mounted up more than
3,000-worth of late payment charges and interest. This took more than six
months to pay off and left me penniless.
I’m so embarrassed I fell into the trap. Only recently have I admitted to my
parents about the payday loans. They assumed my debt was from credit cards.
They couldn’t believe I could be so stupid.
Payday loans just lead to further complications that are impossible to solve.”
SUZANNE knows only too well the perils of payday loans. The salon
receptionist from Maida Vale, west London, took one out for 400 but she
could only make a 100 repayment in the first month. Despite making payments
each month, the loan has now shot up to 692. The stress caused by
struggling to pay the loan back has caused her to suffer from depression.
Suzanne says:
“When I moved to London in July 2011 I needed money to pay the set-up costs of
a new flat. I applied for a credit card but the bank declined me. Friends
suggested a payday loan and knowing I could have it in my account within 30
minutes was enticing.
I borrowed 400 for a month through a loan company. With a few clicks of the
mouse I had the money in my account. The APR on the loan was 4,214 per cent
but I didn’t consider the ramifications as I assumed my next pay packet
would be enough to get rid of what I owed. I didn’t think enough about it.
The next month I couldn’t pay the full amount. I only paid 100, meaning I
incurred a 30 charge plus interest. Now I owe 692 and each month I get a
non-payment mark on my credit rating.
Even though I make payments, the interest is more than what I have repaid. I
am terrified that it will affect my ability to get a mortgage one day.
I have tried everything to pay it off, but rent and bills take my monthly pay.
The stress is extraordinary. I have seen the doctor about depression and it’s
mainly due to the worry I suffer because of my payday loan.
It’s the first thing I think of when I wake up and I get constant reminders of
how much I owe and what fees will be levied.
Taking out the loan was the worst thing I ever did. The stress is
all-consuming and I am now on anti-depressants.
The 400 I borrowed will soon be over 1,000 and it’s terrifying.”
found 86 per cent of women are worried about their finances, with personal
debt, bills and job security topping the list of concerns.
QuickQuid is ten minutes. A bank overdraft can take ten days. QuickQuid
charge 1,734 per cent APR.
are risking a “spiral of debt” through using credit cards, overdrafts and
payday loans to pay off their rent or mortgage. Of those, almost one million
have taken out high interest payday loans to meet housing costs in what
Shelter deemed a “totally unsustainable” situation.
the number of repossessions this year, despite interest rates at a 200-year
low.
WORRIED about payday loans? Call The Sun TODAY on 020 7782 4063 between
10.30am and 6pm and speak to a professional from the Debt Advice Foundation.
If you want an end to such loans, send an email with your name, address and
the words: “Stop The Payday Loan” to paydayloancampaign@the-sun.co.uk.
Article source: http://www.thesun.co.uk/sol/homepage/woman/real_life/4049358/Borrowing-550-cost-me-3k-to-pay-back-I-ended-up-broke-and-homeless.html
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