‘Payday loans are becoming more popular with UK residents who have bad credit.’ Well, this is hardly surprising since they do not require credit checks, can be arranged in moments over the internet and can therefore be seen to fill the ‘gaping void till payday.’ However, whether they are an entirely good idea or not remains to be seen.

The concept is simple and can be very effective. An unexpected cost arises which you cannot cover, so you borrow some money to cover it and then pay this back after you receive your next paycheck.It seems like it is too good to be true, which means it almost certainly is.There are two problems with this kind of loan, the cost, and the potential for it to be abused.Paydayloansuk.com was typical of the sites I saw. The concept is first explained using short words under a smiling picture of a pretty lady. Several links beneath all lead to the same application form. The cost of the loan is not apparent until you get to the bottom of the FAQ’s page, and at 29% it is a very expensive short term loan. To be fair this site did at least display the interest rate, most did not unless you filled in the ‘no obligation’ application form and some even had 10% maturity fees built into the small print, which for a loan of less than a month seems ridiculous.As well as having the interest rate of the loan, the FAQ’s also outlined how simple it is to increase and or extend the loan. The potential for abuse here is obvious, people can extend these short term loans as long as they want provided they still earn enough to cover it each month and pay off the interest. As these high cost loans compound the cost to an unwary consumer could be massive. One ‘satisfied’ customer said ‘I have been using paydayloansuk.com for payday loans for almost a year now. With what I am earning, I am bound to need some extra cash every now and then.’ What they have failed to understand is that this loan gives them no ‘extra cash’ whatsoever. They are simply moving their debts around within the month and paying through the nose to do so.

There is no doubt that payday loans provide a service and that for people in a short term financial crisis they could be a blessing from heaven. However, these expensive companies should be used rarely and never to provide short term relief to a serious, long term debt problem.

This entry was posted on Tuesday, January 8th, 2008 at 10:32 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.