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Pay-day loans – damned if you do, damned if you don’t
A pay-day loan does what it says; it lends you money till your next pay-day. A godsend you might think if you are in dire need. But interest charges can be crazy – an annual rate of up to 2000% is possible.
Of course these are short term loans so the annual rate does not really apply, unless of course you end up borrowing every month. According to the British Cheque Cashers Association, a typical pay-day loan is £88 for 28 days with a £12 charge. So you pay back £100 – an interest payment of 12%. That doesn’t sound unreasonable until you discover that it would amount to around 430% APR.
But there is another way of looking at pay-day loans. If you are running up an overdraft which would cost you £30 at the end of the month, paying £12 to borrow enough to avoid it seems like a good idea. The key to it all though is never to miss paying back the pay-day loan on time. Some can charge you a very high flat fee (up to 60% of your loan). Also, don’t get so reliant on these loans that you are taking one out every month. If you have got into this situation you would probably be better off with a personal loan or consolidation loan.
December 28, 2008 at 10:48 am | Bad Credit Loans, Debt Consolidation, personal loan | No comment
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