What is a payday loan?
It’s a lump sum of money designed to tide you over until payday, essentially it’s meant to be a short-term quick fix.
- Regularly there are adverts on the TV and radio suggesting that if you are behind on your bills, you can take out a payday loan to cover costs in the short-term until your next pay package
- The money is paid straight into your bank account
- You repay in full at the end of the money, with interest and charges
What you need to know about payday loans…
- These loans typically come with incredibly high payback/interest rates (APR- annual percentage rates)
- Normally, if you don’t pay it back within the time period, a late fee is charged
- Always read the terms and conditions thoroughly to know what you are getting yourself into
- The Financial Conduct Authority (FCA) introduced capping for lenders, limiting default fees and the interest that they can charge you
- An overall cap means that you will never pay back more than twice what you first borrowed
- For example, if you borrow £100 for 30 days, the most you will pay back in fees and charges is £24
Don’t be swayed by advertisements, and don’t always assume this is your only option – look around, and make sure you do the calculations before you dive into something.
Information sourced from the Money Advice Service website