Why all the interest in 'Pay Day' loans?
First of all, I hope you picked up on the little pun in the title. Secondly, I hope you're ware of just how many of these loan companies have set up in the past few years.
Just 10 minutes ago I was watching Top Gear when the ad break started. Throughout the ad break, there were 4 different adverts for separate loan companies. All offering to make your life better and easier with their 'clever' solutions to debt.
What they conveniently forget to tell you about is the extortionate amount of interest they charge for for borrowing that money, and more importantly, how much that can screw up your finances for a long time.
Lets look at Wonga, perhaps the most common of these type of companies. The percentage of interest charged by Wonga is an incredible 4214%. It doesn't take a genius to work out that it's extortionate.
So Wonga argue that this percentage of interest is reasonable because the loans are meant to be paid back within 30 days (or just until you get your next pay day). A lot of people seem to accept this argument and take out a loan thinking it's the solution to all their financial problems. Well unfortunately, they couldn't be more wrong.
Here's what happens. You borrow an amount of money one month, say £200. Now you have to pay back £266.31. The problem is that next month you can't afford to pay it back, so you extend the loan. This happens over and over again, until paying off the loan is just impossible and you're in much worse a position than you were before you took out the first loan.
There have been stories of people ending up in thousands of pounds of debt. This could be argued it was there fault for getting themselves into debt in the first place, but when companies such as Wonga making yearly profits of £50 million, it's clear that something is not quite right.
Fortunately, a new law is coming in to make sure that the loans can't simply be 'rolled over' indefinitely. Maybe then we will see an end of this industry, one that is no doubt needed.
Just 10 minutes ago I was watching Top Gear when the ad break started. Throughout the ad break, there were 4 different adverts for separate loan companies. All offering to make your life better and easier with their 'clever' solutions to debt.
What they conveniently forget to tell you about is the extortionate amount of interest they charge for for borrowing that money, and more importantly, how much that can screw up your finances for a long time.
Lets look at Wonga, perhaps the most common of these type of companies. The percentage of interest charged by Wonga is an incredible 4214%. It doesn't take a genius to work out that it's extortionate.
So Wonga argue that this percentage of interest is reasonable because the loans are meant to be paid back within 30 days (or just until you get your next pay day). A lot of people seem to accept this argument and take out a loan thinking it's the solution to all their financial problems. Well unfortunately, they couldn't be more wrong.
Here's what happens. You borrow an amount of money one month, say £200. Now you have to pay back £266.31. The problem is that next month you can't afford to pay it back, so you extend the loan. This happens over and over again, until paying off the loan is just impossible and you're in much worse a position than you were before you took out the first loan.
There have been stories of people ending up in thousands of pounds of debt. This could be argued it was there fault for getting themselves into debt in the first place, but when companies such as Wonga making yearly profits of £50 million, it's clear that something is not quite right.
Fortunately, a new law is coming in to make sure that the loans can't simply be 'rolled over' indefinitely. Maybe then we will see an end of this industry, one that is no doubt needed.
