Payday Loans

Payday loans are a non-priority debt where the borrower receives a small amount of money from a loans company in a short-term loan, typically with the purpose of providing money to tide you over until your next payday.

These loans tend to have very high-interest rates, with additional charges added in the event that you are unable to repay the loan by payday. It is common for debt to accumulate in these situations, which leaves you owing a sum that is significantly more than what you borrowed initially.

Borrowers may give what is known as a ‘continuous payment authority’ to the loans company, so this debt can become quite difficult to deal with as the loans company then has the authority to remove the funds from your bank account. You may not be aware that you have awarded permission to the loans company to do this, but you can contact the payday loan company or the bank directly to get it stopped.

A ‘continuous payment authority’ can be useful, but may also be risky as you could be left short of money in your account, with not enough left to make your other bill payments (for things like rent, mortgage, heating, food of other essentials). You could also receive additional bank charges if you end up going over your overdraft limit.

If you find that you are going to be unable to repay your payday loan by the agreed time you may be awarded a loan rollover, which is offered by some payday loan companies. Here you will receive more time to pay, as your loan rolls over to the next month.

This can be useful for those struggling to pay by offering a helpful solution, but you should consider the downsides carefully before making use of this. With the extra charges and interest added to the debt, you could end up owing more than you initially borrowed, making it more difficult to pay back. Therefore, you should consider a rollover only if 1) your difficulties in making repayments are temporary and 2) you are certain that the following month will hail no further issues and you will be able to clear the loan.

Unsurprisingly, payday loans are associated with the cycle of debt. This is because taking out small loans with high rates of interest tend to increase any money shortfalls quickly, leading to swiftly growing financial problems. This can lead to significant stress, problems paying for necessary items and bills, changes to your lifestyle, and can slow you down in paying off other debts you may owe.

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