I will start this by saying that I am not exactly the world’s number one fan of Payday Loan companies having fallen foul of them myself. What I am trying to decide here is whether they somehow manage to trap and encourage people to go further into debt.
On the one hand they are generally upfront about the interest rates and about charges that may follow. For example a few of the “Representative APR’s” I saw on some of the UK’s most popular sites were 4214%, 1734%, 2090%. These rates are much higher than the average 14.9% on credit cards! What does this mean in real terms? It means that to borrow £400.00 for just one day would cost me an extra £9.50. £9.50 to borrow money for 24 hours at 4214%.
A payday loan is primarily used by those who are low on funds and quite often by those struggling to “make-ends-meet” – so excessive APR’s are unlikely to be met which will in turn cause delays in repayment which will lead to further charges being incurred. My view is that these charges are downplayed – they are written down but in such a way that it seems unlikely anyone could encounter the charges.
Part of the problem I suffered was that their “stringent and thorough” background checks were anything but. In hindsight I should have realised that the checks weren’t as rigorous as they promised, how can checks be meticulous when money can be in your account in fifteen minutes?
The forms that one fills in when applying for a loan rely heavily upon the information you enter – now a payday loan company can’t be held responsible for any inaccuracies in what you enter, however their checks should be improved to ensure the details are correct. In my situation, I was unemployed, not receiving any benefits and had approximately £100.00 to my name yet when I completed the form I told them I was employed giving the name of a previous employer, I said that I was earning between £15,000 and £18,000. My reason for wanting the loan was that I needed money between pay days.
So I borrowed a small amount but couldn’t then afford to repay the money and repeated the erroneous information with another company in order to pay back the first loan and so the trend continued. This worked for two years until I found I was unable to gain more loans as my credit rating was finally affected. To a degree I searched for these companies and brought the situation on myself but my experience proves that checks carried out on me were not full or thorough. I utilised 11 different companies.
From the moment I applied to the first company, my email account was inundated with Payday Loan companies offering loans and deals (most companies say that they may pass on your details to third parties). I was trapped in a vicious circle and the only way out was to borrow more and more money.
Companies that work in a similar line should have a database that they are able to check on repayment plans, loan history, missed payments etc…in order to stop situations like mine from happening.
To conclude I’m not convinced that these companies intend to trap people but they sure as hell make it easy for people to get stuck in a situation with no way out.