Payday loans 101 – Everything you need to know
Payday loans seem like the easy way out when you’re in a fix, but there are some crucial things you have to consider.
We all know the feeling when the money runs out before the end of the month. We’ve all been there. At times like these, you may be searching for ways to get your hands on quick cash. To tie you over until payday, right? You’ve tried borrowing money from family or taking a small loan from the bank, but your credit isn’t the best. That’s when you may consider turning to payday loans.
Payday loan quick facts
Are payday loans a good idea? Can you apply for a payday loan while under debt review? Here’s everything you need to know about these seemingly innocent quick-fix cash injections.
- The entire repayment terms are generally set at 30 days for payday loans.
- The maximum loan amount on payday loans is R5000.
- Ads for payday loans will promise you quick cash – in under 60 minutes.
- The total repayment comes off your next pay cheque.
- A debit order is set up to avoid non-payment.
Looking at these facts, payday loans seem mostly harmless, right? Keep reading to learn about the important but hidden terms and conditions.
The hidden costs of payday loans
Payday loans are not as “quick and easy” as they may first seem. Here are a few of the most important questions you should ask before claiming one of these short-term loans.
What are the fees on payday loans?
The fees on payday loans are astronomically high. Fees are adjusted based on the company you approach, your credit score, and how long you want to pay the loan off. Between the service fee, initiation fee, and interest rates, you can end up paying as much as half of your original loan amount in extra costs.
Do payday loans have high interest rates?
The interest rates on payday loans are some of the highest in the country. Depending on factors such as your credit rating, the company could choose to bump your interest all the way up to 60%.
Are all payday loan companies safe?
Unfortunately not. Many payday loan ads you’ll find online are by companies that are essentially loan sharks. They prey on those who need a quick buck, and they will also often give loans to those who can’t afford them.
Can I cancel a payday loan once I apply?
You may be able to cancel your loan application, but once approved, it’s almost impossible to get out of. You must pay the loan back in full or face legal consequences.
Will taking a payday loan affect my credit score?
If you fail to repay the loan as per the terms of your agreement, then yes. A payday loan can have a negative impact on your credit score in this way.
Can I apply for a payday loan while under debt review?
While working with a debt counsellor, you may not apply for any further credit. This includes short-term credit or payday loans.
Don’t fall for the payday loan trap
While they may seem like a good idea at the time, payday loans are a dangerous trap. The high fees and harsh terms mean that you’ll instantly be short on cash the month after you repay the loan.
Let’s look at an example. If you take a payday loan of R2000, the extra fees and costs take could total up to R2500. When your next pay cheque lands in your account, you’ll instantly have R2500 less than what you need to make it through the month. This means you’ll once again need a payday loan before the end of the following month. And so the cycle continues.
Are you tired of claiming payday loans?
If you’re in debt, you don’t have to struggle on your own. Contact Debtline and let our team of professional debt counsellors get you the help you need! We will guide you on your way back to a debt-free life.
It’s possible – and it means you won’t need to rely on payday loans to get you through the month.
