In this article, we share the risks of payday loans and explain the reason why we say they can be incredibly dangerous to your financial health, especially if you’re already struggling with debt.
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Payday loans may seem very tempting if you need cash quickly to pay bills or debts. But how much is that ‘quick fix’ really costing you?
The reality is, that they are expensive (you’ll end up paying back a lot more than you borrowed).
Payday lenders often use attractive advertising to convince you they have the perfect solution to your worries. But that’s not the case. Here’s why:
Risks of payday loans
They come at a very high costs
These types of loans have very high fees, which translate into very high annual interest rates.
Credit providers can charge up to 60% interest on loans less than or equal to 1 year. Although your loan is meant to be a short-term fix to get you through the month, you will land up paying an exorbitant amount of money on interest alone. Service fees and interest rates are often charged until the full amount of the loan is repaid to the credit provider.
Monthly debit order repayments can sometimes be un-reversible or undisputed.
A debicheck debit order system makes it a lot more difficult for a customer to dispute who has already been authenticated.
You borrow again to repay the loan
When you can’t repay the loan, the temptation is to borrow again to repay the last loan. It’s a debt trap!
It may affect your credit rating
If you can’t repay the loan due to the high costs, it may affect your credit rating.
More about credit ratings
Extremely difficult to get out of
In our experience, many people who access payday (fast) loans are in financial hardship or over-indebted. When you can’t make repayments, it is very difficult to get out of the situation.
Use this calculator to check if you are over-indebted or not.
High default fees
If you default (you fail to pay back the loan on the due date) you’ll usually be charged default fees that are added to your debt. The amount that can be charged in default fees is up to twice the amount you borrowed. You are severely penalised for missed payments.
What are better ways to get your debt under control?
- Phone Bill – If you can’t pay your phone bill, call your service provider. You may be surprised at the help they can give you More about paying phone and internet bills
- Utility Bill – If you’re having trouble paying electricity, or water bills, call your utility provider as soon as you can. More about paying utility bills
Our Final Tip
Apply for Debt Counselling or book an appointment with one of our professionals.
- If you are struggling to meet your payday loan repayment, contact the credit provider immediately and explain your situation
- Negotiate a new payment plan with your credit provider, as you cannot afford the current repayment plan. Make sure you cancel your direct debit orders to prevent your account from being debited, regardless of your new payment plan.
- Do not default on a payment. This will result in debt collectors hounding you for money.
What are the consequences of not paying a payday loan?
- The Account will be anded over to collections – If you don’t remedy the problem after the first step, the lender will hand your details over to either their collections department or a call center that will act on their behalf.
- The defult on the account will be listed on credit bureaus – If this still doesn’t resolve the problem, the lender will contact the credit bureaus and they will alter your credit record. “This will limit your chances of getting credit from another service provider in the future, as they fear you will also default on payments. This is extremely concerning if you plan to buy assets, like a home, and if you’re looking for a new job, this can work against you.
- A letter of demand will be issued – Assuming you’re unaffected by a degraded credit record, lenders will move on to the next step. Here they will involve lawyers and force you to pay for their expenses.
- Judgment in court
- Either garnishee or a sheriff will take your assets