We’ve all seen and heard those stupid adverts on T.V and the radio. Some loan agency offering Payday loans for consumers needing a “quick fix”. They brag about how within minutes, you’ll have the money transferred into your account and off you can go again all your life’s problems solved in one easy transaction! What saints they are!
Though at the time, they purposefully fail to mention the disclaimer and all that it entails.
What this disclaimer actually says, is that if you choose to use their services to obtain a loan, you’ll face outrageous interest rates and admin fees that will make it nearly impossible for you to pay the loan back in a timely manner. To be fair and honest, at the time of applying for the loan, 99% of consumers are more concerned about getting the money, as to the long term and lasting repercussions, than how much they will be actually paying back.
Payday loans are loans designed for an unexpected expense that you can pay back quickly, by your next payday, hence the name.
Though due to the exorbitant fees and interest few consumers are able to do this, and then become trapped in a perpetual cycle of debt. Every month you’re back there taking another payday loan in order to make it to the next month. You are essentially creating an overdraft facility on your pay cheque.
How They Work
When you go to a payday lender, the lender will ask for some form of proof that you currently have a job, such as a bank statement or payslip, your identity book/card, and that you have a bank account that they can pay the money into. That’s all the information they need.
The creditor will get you to sign off on a debit order instruction so that they can administer the deduction onto your bank account directly. This means as soon as your salary hits you bank account their debit order comes straight off.
Now, if we think about the economic climate that we’re living in, people without savings to cover unexpected expenses are generally living from pay cheque to pay cheque. The majority of lenders can’t pay the loan back in that short a space of time, and thus will have to roll over their loans many times over. The affect of which, means fees & interest accumulating, making it even more difficult to pay off, trapping the lender in a perpetual cycle of ever growing debt.
What You Can Do
If you find yourself in a cash emergency situation, where you need money straight away, there may be viable alternatives that can keep you from getting into a cycle of debt that payday loans can cause.
Assess your situation
9 out of 10 times if you’re in a hurry to get a loan, you’re not going to get a good deal, Mr. Credit Provider will though. If you can, take a moment…calm down…breathe…and the time to consider “ALL” of your options. You may find that your situation isn’t as “life & death” as you first thought it was, and you may very well be able to come up with viable alternatives. A payday loan should be your ABSOLUTE last resort.
Talk to the banks
It’s a fact that you will get a better deal from a bank before you’ll ever get one from a loan agency. This is because banks are regulated more strongly than micro-lenders, and this is an unfortunate but true fact. Banks often offer short-term loans at competitive rates, so it pays to shop around first, not the first loan provider you come across willing to give you money.
Talk to your employer
Depending on where you work, and if your company allows it, your boss may allow you to take an advance on your salary, or company loan. Though consider this option very carefully, as it could affect your career options later on. In addition, if you’re living pay cheque to pay cheque, you’ll end up short on your next salary, which essentially postpones the inevitable further down the road.
Save now, seriously it helps!
Putting R50 or R100 a week away adds up, so when something unexpected happens, you might just have enough set aside to cover it. Or at the very least, it means you wouldn’t have to borrow as much.
Talk to your creditors
If you need money to pay a loan or account, ask your creditors if they can help. If you don’t ask you’ll never know, what do you have to lose? You might be surprised how many will work with you to come up with a plan to pay the account over time.
Use a credit card
This should be far from your first option and should never be utilized except if it’s an absolute emergency, credit card debt is one of the top credit facilities which contribute to consumer over-indebtedness. “However!” a credit card usually has a much lower interest rate than a payday loan does.
Use your retirement account or Home loan savings facility
Another option you should not take likely, but you may be able to borrow money from your RA or if you have a home loan savings facility attached to your bond account. Any interest you have to pay usually goes back into your account.
Get a life insurance loan
If you have a cash value attached to your life insurance policy, you may be able to borrow from it. You have the rest of your life to pay it back, and hopefully you do. Though if you fail to do so, the life insurance company will deduct it from the value of the policy upon your death; paying out the remaining monies. Not an easy decision to make, and one that should only be made in the direst of situations.
Go through you house and see if there are any articles of value that you don’t use anymore (won’t be missed) and is just currently taking up space cluttering your house. Then take it in to a pawn broker. This way you’re killing two birds with one stone, getting cash in as well as cleaning out your place of unnecessary clutter.
Talk to a friend or family member
Financial dealings with family members can be…tricky if not downright embarrassing, so if you decide to go this route, be sure to arrange a realistic repayment plan; and stick to it so you don’t put your relationship at risk.
Remember, if you find yourself in a financial emergency, the best thing you can do is look for alternatives instead of high-interest loans that could trap you in an everlasting cycle of debt. Your wallet and mental state of mind will thank you!