TYPES OF DEBT
Payday Loan Debt Help & Advice
Types of Debt
Payday Loan Debt Help & Advice
Payday loans have long been considered controversial.
Often used as a quick fix for those who find themselves struggling finance one month or have been presented with an unexpected financial emergency, thousands of people across Scotland have turned to payday loans.
Payday loans are easy to find, they’re advertised everywhere and are available at the click of a button.
If used as a last resort, and used properly, a payday loan can offer support when needed, however, if considering this option, it’s important to carefully check the small print of any agreement.
This type of loan often comes with excessive interest rates, high late payment charges and very short repayment periods, causing people to become reliant on them to help them through the month. This in turn becomes a vicious cycle that causes high levels of financial distress.
Why Do People Use Payday Loans?
There are several reasons why people may turn to payday loans.
Unexpected life events are more often than not the reason turn to this loan type in a bid to find a little financial breathing space. From relationship breakdowns to redundancy and unemployment, thousands of people find themselves seeking financial aid for a number of different reasons out with their control.
The most common reason people use this type of loan is to help cover high bills. Inflation is causing prices to rise all the time, but for many their income isn’t enough to keep up with this – fueling the need for a payday loan just to get from one payday to another.
Life is unpredictable, and people are hit with emergency expenses every day. As such, payday loans are also often used in situations such as emergency house or car repairs.
However, for some people payday loans can become a method of repaying another debt that has gotten out of hand.
What are the dangers of a payday loan?
Despite seeming like an acceptable fix when facing money worries and payday is just around the corner but it’s important not to underestimate the impact it can have on your credit score.
Failure to pay on time can cause serious issues and send your finances into a crippling downward spiral.
When considering a payday loan you should always consider the potential pitfalls you could face.
High interest rates
It’s no secret that payday loan companies are known to charge the highest possible interest rates. Failing to repay the loan within the agreed timeframe can also trigger penalties and fees which can quickly cause further financial distress.
Short repayment periods
Payday loans are often required to be fully repaid in a short period of time – typically within a month or on your next payday. It is imperative to check the small print of any financial agreement to ensure you’re aware and able to meet the contractual repayments. Again, failure to make these repayments can result in serious problems for the borrower.
Direct bank account access
If you apply for a payday loan online, in many instances you will be required to provide the lender access to your bank account. People often don’t take notice of this until the lender takes unexpected deductions from their account – this is often to cover fees that were missed in the small print. Your bank account details can potentially be shared with hundreds of other companies, which again highlights the importance of reading every detail in your proposal before agreeing to the loan.
How payday loan debt can be avoided
Payday loans might seem like a good idea at the time when you’re living with money worries, but there are ways to avoid using them in the first place.
Be aware of your options
It’s very easy to make rash decisions when you’re in a panic about your finances, so it’s always good to look at all your options. We always advise to take a look at your situation as a whole as you may be able to find an alternative that won’t cause you financial distress.
Save for emergencies
You can also avoid the need for a payday loan by adding an emergencies category to your savings budget. Saving even the smallest amount each month can lead to having a small nest egg should you ever need it.
Budgeting in itself is another great way to make sure you always have funds to cover everything. Being careful with your money allows you to make it go further, which in turn allows you to within your means.
Don’t give into impulse buys
Avoiding impulse purchases can save you hundreds of pounds a month, giving you more money to not only put aside for emergencies, but to ensure you won’t ever be caught short for bills.