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The Risks and Dangers of Payday Loans

Payday loan companies offer short term lending to consumers usually up to around £2,000. When you need money for anything such as for utilities, appliances, vacation, or emergency funds a common option which people go for is a Payday Loan. It is the fastest method of acquiring money and there is no shortage of companies out there offering the service.

Payday loans can be processed for a very short time, usually around 24 to 48 hours. A lot of companies don’t require credit checks for them which make them a very attractive option for people who have poor or bad credit history. Usually the main (and only in some cases) criteria required is that you are in full time employment. However, there are advantages are disadvantages that you need to watch out for. Some of these are;

1. High interest rates
Payday loan companies make their money by charging high interest rates. Since the lending is usually on a short term basis they don’t have enough time to make money out of you so they hike the interest rates up, sometimes in excess of 200% but for some this can lead to financial difficulty.

Payday loan companies make money easily accessible to people so it is more tempting to keep topping up existing loans. Some companies even offer the cash to you when they see you are coming towards the end of you loan term to keep you in debt to them. This way they can keep charging you interest and profiting from you every month.

Some people can end up in server financial difficulty from Payday loans as they keep borrowing ore and more money until eventually they are borrowing to pay back the money they borrowed in the first place! This situation can end in more sever consequences like bankruptcy, court orders and even a visit from the bailiffs. If you find yourself in this situation you should seek debt help immediately.

2. Only available to people in full time employment
As the name suggests, you will only be able to get a Payday loan if you are in employment. You will most often be required for proof of this so a Payday loan company may ask you for a copy of your wage slips. Some companies will only offer Payday loans to people who are in full time employment so be sure to check with the company first before signing any documentation.

3. Credit rating still matters
Although most Payday loan companies will accept people with a bad credit history, your credit rating will still have an effect on whether or not you will be approved for a loan. They still have to take into account how much of a risk you are to them in terms of repaying the debt, so lets say you may have a bad credit rating because you consistently making late payments. Now the company would take this into account as they would see that although the payment is late, it is being paid. This is better than missing payments altogether for which you would pose more of a risk as the company would not be sure if they would get their money back.

If you have loans or credit card debt which was taken out before April 2007 you make qualify for an Unenforceable Credit Agreement which would enable you to write off your debt in full.