In this article, we share our best tips on what to do if you can no longer afford to repay the expensive and high-interest pay day loans.
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What is a payday loan or pay day loans?
Pay day loans are short-term unsecured loans designed to give you quick access to money when you need that little bit extra to get through to the end of the month. These loans are usually repaid after a week or two, at which point the repayment amount is deducted from your account.
What is a cost of a payday loan?
Because payday loans involve a small amount paid back soon after they’re taken out, you can easily be fooled into thinking that a payday loan doesn’t pose much of a risk. But the fees and interest rates associated with these loans are higher than almost any other type of loan, making them a very expensive solution. In South Africa, borrowers can be charged up to 5% interest per month, which might not sound like a lot. But when you add on administration fees, you could end up paying over R400 in fees and interest on a R2000 loan.
“The fees and interest rates associated with these loans are higher than almost any other type of loan”
Because of the high costs, a payday won’t help you solve a cash flow problem, especially if you’re already having financial difficulties. By taking out another loan, your expenses will just go up again, setting you up for another month of financial strain. In fact, if you already had several debit orders before you took out your payday loan, the repayment could deplete your account funds that you had put aside for another debit order. A bounced debit order would almost certainly put a mark on your credit history, which would have a negative impact on your credit score, making future loans even more costly.
Risks of payday loans
Before you take out a payday loan, make sure you understand the risks and consider the cheaper, less risky alternatives first.
Difficulty repaying payday loans
Don’t despair! If you’re having trouble repaying a payday loan (or several payday loans), follow these steps or book an appointment with one of our professionals.
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