Payday loans have been in the news a lot recently, especially since the insolvency firm R3 estimated that as many as 3.5 million Brits are likely to avail of such a loan over the next six months.
Short-term loans are designed to provide cash in the event of an emergency, such as an unexpected bill or a problem in the home that needs urgent repair. If they’re used for just those sort of circumstances, they are a really useful way of solving an immediate problem.
However, not many people do use them like that. Several Brits have come to think of payday advances as a monthly necessity and this has left many of them in constant debt.
Steve Perry has written a book called When Payday Loans go Wrong that documents his descent into debt. The 30-year old initially borrowed £250 to pay for a weekend break but 18 months later he found himself in debt to 12 different companies to the tune of £15,000.
Companies such as Wonga say they levy a one off fee of £20 as soon as a customer defaults on their payments and interest only accumulates for a further 60 days. However, one woman claims she was hit by charges nearly equal to the sum of her loan as soon as she defaulted. On further investigation, it transpired that her case more complex than usual and that was why the charges mounted up so quickly.
But there is a moral to these stories and that is that instant cash loans must be repaid on time and if you think you’ll be unable to do that, it would be better to seek finance elsewhere.