Changes to how payday loans will work
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You will no doubt have seen numerous adverts on TV and radio offering the chance to take out an instant loan with no credit checks. These loans might sound great but, as they say, the devil is in the detail.
Just a glance at the small print shows extremely high rates of interest, even over 6,000%. Taking out a payday loan might seem like an easy way to borrow money but it could put your finances in a spin for a very long time.
Thankfully, from January, the way payday lenders offer a loan is changing. A cap is being introduced ensuring you aren’t charged more than 0.8% a day, so no-one will have to pay back more than twice what they have borrowed.
How does this break down?
Well, if you took out a loan of £100 over 30 days and you pay it back in time, you would only pay £24 in interest. If you fail to pay back your loan on time, you can only be charged a maximum of £15 plus the APR cap of 0.8% a day.
It may make payday lenders sound more safe and secure to use, but going to a payday lender is still not the best way manage your finances.
This cap will mean that less high street lenders will be opening their doors to struggling families and, although that’s a good thing, without alternative options those families may now turn to loan sharks.
Russell Hamblin-Boone, the chief executive of the Consumer Finance Association spoke to the BBC about the options available for lending. He said: "The fact is, the demand is not going to go away. What we need to do is make sure we have an alternative, and that we're catching people, and that they're not going to illegal lenders."
Loan sharks are usually strangers who offer to lend you money with interest rates that can rapidly increase. They’re not regulated and can often use intimidating behaviour, as well as physical and mental abuse, to get their money paid back.
Where else can you go if you need help?
Don’t bury your head in the sand. Worrying about money can be quite stressful but there are a whole host of organisations on hand who can help.
We have a range of advice and information on payday lenders and managing your finances on our ‘Your Money’ Hub, including some of the alternatives on offer, such as credit unions. You can manage your income and outgoings with our budget planners, find out how to increase your income and save money every day with our money saving tips.
There are also a range of charities and companies who you can talk to and who can offer free advice on your finances. Check out who you can speak to here.