Fast cash comes at a steep price when you use payday lenders – and even if you make an inquiry to one of those companies, it goes straight onto your credit file.
This doesn’t look good when you go to a traditional lender and banks have been known to deny applicants purely on the basis they’ve considered a payday lender.
The exorbitant interest rates charged by a payday lender means you can be taking a considerable risk when you deal with them.
For the vast majority of people, there’s no need to use a payday lender. Finance brokers should be able to source lines of credit or loans that will not only fix your short-term needs but help you achieve your long-term goals. And better still, professional brokers will keep your credit file clean!
Below are six dangers that come with sourcing quick cash from a payday lender.
- Sky-high fees. You’ll need to repay 20% of the amount you’ve borrowed, plus 4% a month. Unfortunately, payday lenders are not legally obliged to tell you how much you’ll pay across a year. It is very likely to shock you.
- Fees and charges. It doesn’t stop with the interest rate. If you’re late with a payment, some will slug you a $7-a-day fee.
- Repayments. Payday lenders will take their money directly from your pay (hence their name), which means the repayment will come before food and rent.
- You’re caught. The National Debt Helpline says many people find it hard to get out of their arrangement. Once you’ve signed up, you’re obliged to pay all fees and interest rates in full.
- Default fees. If you can’t settle the debt on the day it’s due, you’ll likely be hit with default fees. The National Debt Helpline says these can amount to twice the amount you initially borrowed.
- Debt trap. Some people will seek a second loan to pay off the first loan with their payday lender. That’s a debt trap you have to avoid as it can be a very slippery slope.
This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.