In recent years, payday loan companies have multiplied all offerings which seems like an easy option for cash strapped individuals and businesses. The slick advertising campaigns and high profile sponsorship deals made certain lenders household names and an attractive option for those needing quick access to money. However, while payday loans appear like a straightforward option and are easily accessible, the high interest rates means that people are stuck paying back a significant amount more than they had originally borrowed.
While the Financial Conduct Authority increased the regulations surrounding payday loans in 2015, payday lenders still advertise themselves as an alternative to traditional bank loans and boast that they can send the money within minutes of approval. Due to this, they are a tempting option to those requiring a quick injection to their businesses or personal cash flow.
Find out why pay day loans should be a last resort for your business finance.
The High Cost of Quick Money
Payday loans are intended as a short term loan for an unexpected financial burden according to the lenders’ websites and adverts. They also highlight how payday loans are for everyone even if they have a history of bad credit or CCJs. The money is instant and promised to be paid into accounts quickly if approved. However, the ease of accessing this money comes at a price: a very high interest rate.
By completing a quick online search of “payday lenders UK” a long list of potential companies appear each offering loans with interest rates of up to 1325% APR. A small loan of £400 over 3 months from one of the most popular lenders could cost £601 in repayments making it a very expensive method of borrowing money.
Alongside the high interest rate, there are additional fees for late payments, higher interest charged on missed payments and the threat of legal proceedings if the customer defaults on the loan.
The Payday Loan Trap
When clicking on a payday loan website, the ease of access to money is the most prominent feature. This does not take into account the individual’s ability to pay back the loan and many fall into the trap of taking on another loan immediately after paying one off. Recent reports highlight how payday loans are being used to pay household bills on a regular basis and how they have a negative impact on mental wellbeing. Payday loans may provide a quick boost of cash but the high repayments should be avoided by both individuals and businesses.
While payday loans are a quick method to access money, it is one that is costly to the wallet due to the exceptionally high interest rates. If you are a business looking for a loan, avoid the temptation of the payday loan lenders and try the loan calculator on our website or contact the experts at Genie Lending regarding your business’s needs. There are many alternative finance options available – even if you have bad credit or are a start-up without the years of accounts needed for a traditional bank loan.