WHAT IS A PAYDAY LOAN?

And why should you care?

PAYDAY LOANS ARE

WAYS TO BORROW

MONEY SHORT-TERM,

DESIGNED TO GIVE

YOU CASH TO TIDE

YOU OVER UNTIL YOUR

NEXT PAYDAY.

TYPICALLY YOU’LL BE

ABLE TO BORROW THE

AMOUNT YOU GET

PAID PER MONTH UP

TO £1,000 AND THEN

PAY THE MONEY BACK

AT THE END OF THE

MONTH.

THE PAYDAY LOAN BUSINESS IS WORTH

AROUND £2BN PER YEAR AND IS

GROWING RAPIDLY. THEIR POPULARITY

IS LARGELY DUE TO 2 REASONS

MOST COMPANIES WILL

GRANT A LOAN WITHOUT

REQUIRING YOU TO

HAVE A GOOD CREDIT

HISTORY – THIS IS

IMPORTANT BECAUSE

BANKS AND OTHER

TRADITIONAL LENDERS

HAVE BECOME STRICTER

SINCE THE CREDIT

CRUNCH BEGAN IN 2008.

TYPICALLY ALL YOU

NEED TO QUALIFY

FOR A PAYDAY LOAN

IS TO BE OVER 18

AND TO HAVE A

REGULAR MONTHLY

WAGES GOING INTO

YOUR BANK.

SECONDLY AFTER

APPLYING, THE MONEY

IS TRANSFERRED

QUICKLY, USUALLY IN

YOUR BANK BY THE

END OF THE DAY –

MAKING THE WHOLE

PROCESS SEEM QUICK

AND SIMPLE…

SO PAYDAY LOANS CAN BE VERY

TEMPTING FOR THOSE WHO NEED TO

TEMPORARILY TOP UP THEIR FUNDS,

AND COMBINED WITH MASS MEDIA

ADVERTISING MAKE THEM SEEM AN

ACCEPTABLE FORM OF FINANCE.

BUT BEWARE, WHILE

THEY MAY SEEM OK,

THERE ARE PLENTY OF

STRINGS ATTACHED

THAT COULD VERY

EASILY LAND YOU IN

TROUBLE.

WHAT’S THE CATCH?

WHILST PAYDAY

LOANS MAY SOUND

STRAIGHTFORWARD

AND RELATIVELY

HARMLESS, THERE

ARE A NUMBER OF

MAJOR ISSUES YOU’LL

NEED TO BE AWARE OF

BEFORE CONSIDERING

APPLYING FOR ONE.

FIRST, THE RATE OF

INTEREST CHARGED ON

YOUR BORROWING WILL BE

GIGANTIC COMPARED TO

ALMOST ANY OTHER KIND

OF BORROWING.

FOR EVERY £100 YOU

BORROW YOU’RE LIKELY

TO BE CHARGED £25 OR

MORE PER MONTH WHICH

WORKS OUT TO IN EXCESS

OF 1,000% APR.

EVEN THE MOST EXPENSIVE

CREDIT CARDS CHARGE

AROUND 30% APR, WHILE A

TYPICAL PERSONAL LOAN IS

LIKELY TO CHARGE YOU

AROUND 10% APR – MAKING

THE THOUSAND PLUS-

PERCENT APR OF A PAYDAY

LOAN OUTRAGEOUS IN

COMPARISON.

PAYDAY LENDERS ARE KEEN

TO POINT OUT THAT THEIR

LOANS ARE DESIGNED TO

BE ONLY SHORT TERM

(UP TO 1 MONTH) AND SO

SHOULDN’T BE COMPARED

WITH LONGER TERM

BORROWING.

THE SECOND BIG DRAWBACK

OF TAKING OUT A PAYDAY

LOAN IS HOW DANGEROUSLY

EASY IT IS TO ROLL YOUR

LOAN OVER FROM ONE

MONTH TO THE NEXT, WHICH

VERY QUICKLY INCREASES

THE AMOUNT REPAYABLE.

FOR EXAMPLE YOU MIGHT TAKE OUT A LOAN OF

£1,000, WHICH WITH INTEREST ADDED COULD MEAN

YOU NEED TO REPAY £1,250 ON YOUR NEXT PAYDAY

(ASSUMING £25 IS CHARGED PER £100).

WHEN YOU GET TO

PAYDAY YOU MAY NOT

HAVE ENOUGH FUNDS TO

COVER THIS REPAYMENT

IN FULL, IN WHICH CASE

IT’S EASY TO SIMPLY

ROLL YOUR LOAN OVER

TO THE NEXT MONTH.

IN FACT YOUR LENDER

MAY ENCOURAGE YOU

TO DO SO, BECAUSE

THAT’S HOW THEY

MAKE THEIR PROFITS!

PROBLEM IS BY YOUR

NEXT PAYDAY YOU’LL

OWE EVEN MORE,

MAKING YOUR INITIAL

£1,000 BORROWING

MORE LIKE £1550, AND

THE AMOUNT REPAYABLE

CAN QUICKLY SNOWBALL

INTO A DEBT YOU CAN’T

DEAL WITH.

THIRDLY, IT COULD

SERIOUSLY AFFECT

YOUR ABILITY TO

BORROW IN THE

FUTURE.

CREDIT REFERENCE

AGENCIES SUCH AS

EXPERIAN OR EQUIFAX ARE

MOVING TOWARDS LISTING

PAYDAY LOANS SEPARATELY

ON CREDIT REPORTS AND

MANY MAINSTREAM

LENDERS ARE NOW

LOOKING AT THIS WHEN

YOU APPLY FOR FINANCE.

THIS MEANS THAT YOU

MAY FIND IT MORE

DIFFICULT TO BORROW

MONEY IN THE FUTURE

FOR CREDIT CARDS,

CAR LOANS OR

MORTGAGES.

RECAP

Payday lenders make

short term, high

interest loans

Dangers exist if you

don’t pay them back in

full on time

Massive interest rates

mean that debts can

spiral out of control

They offer a tempting

solution for those who

cannot get credit elsewhere

But can leave a

negative ‘footprint’ on

your credit file

WHEN YOU ARE READY GO TO THE

ASSESSMENT SECTION TO ANSWER SOME

QUESTIONS IN THE 60 SECOND QUIZ

Thank You !For more interactive Financial Education

please visit

http://personalfinanceacademy.co.uk