The Good, the Bad & the Ugly Of Payday Loans
The problem with payday loans is that there are massive disadvantages & drawbacks that can quickly land you in financial distress and down the dark road to a life of debt.
Whilst getting a quick payday loan to see you through until the end of the month is a convenient way of raising money quickly there are some unscrupulous lenders out there who have you paying 3 figure interest rates.
The good part however, is that they are just a few clicks away on your smart phone, available 24/7, no credit checks & the best thing of all is that you can have the cash in your account within minutes.
This is why more & more people are turning to payday loans without worrying about the disadvantages of this type of credit & are left having to deal with the consequences later.
Furthermore, not only is the convenience of this type of funding a plus factor but so is their simplicity & transparency.
You know exactly how much it will cost to loan a certain amount that is to be repaid on a certain date.
Easy & simple, no hidden fees or charges and another reason why they’re so popular.
Let’s face it, they can be a lifeline when you are in dire financial straits, but they’re oh so cruel & unforgiving when it comes to paying them back.
The Problem With Payday Loans Is…
Imagine being offered a credit card that comes with an annual interest rate of over 300% – it sounds like a joke doesn’t it?
But it’s no laughing matter when you consider some payday loan lenders are charging easily in excess of 500% for a short term payday loan.
Lets take the case of John who needs some cash to see him through the month…
John needs cash urgently but payday is still 2 weeks away
- So he whips out his smart phone & searches for a payday lender as he hears they give out loans easily to permanent employed people
- He sees he can borrow R1,000 but he’ll have to pay an extra R100 over & above the loan amount when he repays it on payday in 14 days time
- So John thinks that looks great & a lot less hassle than trying to take out a loan from the bank or pay credit card charges
- John is also wondering what all the fuss is about – he is thinking the R100 interest charge is only 10%
- What John doesn’t realise is that is only over 14 days when in actual fact the interest on his short term loan amounts to a whopping 261%
- The 14 day period since getting his loan goes very quickly & it’s now time to repay the R1,000 loan but due to other unforeseen financial commitments John is left short of money once again.
- Once is never enough…
- Remembering how easy it was to get his original payday loan, John approaches another payday lender & takes out another loan to be repaid, with interest, on his next payday & so the cycle of debt begins.
- And so using this easy access to funding John has created a cycle of debt for himself which happens to so many who fall for this easy money scam.
- In just 1 year, the debt created by payday loans will multiply so fast that it can create a lifetime of debt & misery
|Table Showing Actual Interest Rate On a R1,000 Payday Loan|
|Loan Period (Days)||Amount||Interest Amount||Actual Interest Rate|
|7||R 1,000.00||R 100.00||521%|
|10||R 1,000.00||R 100.00||365%|
|14||R 1,000.00||R 100.00||261%|
|21||R 1,000.00||R 100.00||174%|
The interest amount in the table above is fairly conservative but still provides shocking reading when you can see how much interest is really at stake.
It’s even more shocking when you consider that some of these unscrupulous pray on the poor as they are the people who are the most susceptible to this type of easy money.
If you have to get an urgent loan look at other alternatives such as approaching your bank, friends or family, a salary advance from your employer or accessing funds from your bond but avoid taking out how interest loans like the plague.
If you do apply for a payday loan make sure that the lender is registered with the National Credit Regulator (NCR) & National Credit Advisor (NCA) which will provide a degree of legitimacy.
Don’t be reckless when it come to accessing easy money via payday loans as you could end up being one of the 10 million South Africans who are over-indebted and cannot meet their financial obligations.