Payday loans are used to help people with week to week funding gaps. A typical £100 loan costing £125 to repay after one week. However, when it goes wrong and you can’t afford to repay the loan what happens? We examine what happens debt solutions are available for people with payday loan debt problems and what you should do to manage this problem.
What is a payday loan?
Payday loans first became popular in the United States and quickly spread across the Western World for people who need help with their funding short fall until their next payday. Since inception, payday loan companies have tweaked their technology and payment methods to ensure they can provide an exceptionally speedy service. Some lenders are claiming to be able to have the money in your bank within 20 minutes. Advertising by companies providing this credit often centres around receiving the money in your bank immediately and enabling you to spend it within an hour.
The payday loan is usually for less than £500 for first time customers and for a short term period (usually between 7-10 days). You can apply online or on the high street. The interest rates for payday loans can vary from 2,000% to over 4,000% in the UK. These high interest rates are one of the problems people have with cash advance loans, especially when it’s a struggle to repay the money borrowed. Whilst the initial loan may be small, the interest rate means the repayment can be large, particularly if the money is repaid late.
“I can’t pay back my payday loan”
So, what would happen if you cannot afford to repay your payday loan? The payday loan company would rightly expect their money back along with the fee they charged to lend you the money. If this does not happen then you can expect additional fees and charges. These payday loan charges will include a late payment fee and a daily rate on top for the outstanding balance. With payday loan debts, the longer you leave the debt unpaid the harder and more expensive it becomes. The best situation is to calmly sit down, complete an income and expenditure, which includes what you spend on your mortgage, rent, food etc and then check what you have to pay contractually to each creditor each week or month. If you don’t have enough money to live and pay your creditors each month then you have a debt problem where you need help. If you are struggling to make the ends meet then you should still speak to a debt advice charity for help because they have solutions to debt which can help you.
Payday loan debt solutions
There are debt solutions available for people with payday loan debts which you can access via a registered debt charity. These solutions start with token payments towards your payday loan company each week. These token payment agreements may not be for the full amount however if the charity can get interest and charges frozen then at least the problem will not get worse and you will be repaying your debts.
If you have other unsecured credit debts then you may want to think about a debt arrangement scheme (Scotland) or debt management plan. These solutions require you to pay back all of your debt but over a longer than agreed period. This way, your creditors get back all of their money and they may even freeze interest and charges. The benefit for you is you will have negotiated with your creditors and helped to avoid the situation growing considerably worse.
An IVA or Protected Trust Deed would allow you to repay your debt, including any type of loan over an agreed period of time. If you maintain the arrangement you will be debt free in 3 or 5 years having paid back an affordable monthly amount. You would only repay a percentage of the money you borrowed via your payday lender and other creditors.