Why You Should Avoid Payday Loan Rollovers
In an ideal world it would be possible to predict and budget for monthly incomes and monthly outgoings so that we could ensure that there is always enough money in the bank to accommodate the outgoings.
Unfortunately this is not possible thanks to the variable nature of water bills, gas bills, electricity bills, variable mortgages and other emergency bills. Therefore it is unfortunately inevitable that we would have to seek additional finances from a third party. This is when cash till payday loans can be extremely useful.
Payday loans are a great source of income, providing they are used properly. They are exactly as their name implies a short term source of income until your next pay check. There are many different cash till payday loans in the market therefore as a consumer you have a right to be choosy about who you select to be your lender.
It is very important that you consider the interest rate or ‘APR’ they are offering and as this is the amount of interest you pay against the loan therefore you must ensure that this is as low as possible. The other very important factors to consider are the associated fees. These are any fees accumulated by taking the loan so either a signing up fee or a rollover fee. A signing up fee is the amount of money charged for taking out the loan. There are so many service providers that it is possible to source one who does not charge this type of fee.
The other fee is known as a ‘rollover’ fee and all lenders will include this in their product. This is the amount of money that you pay if you do not make the agreed repayment on the agreed date i.e. delay by another 2 weeks or a month. A typical repayment agreement is either 14, 28 or 31 days. It is crucial to avoid rollover fees due to the implications of the mounting debt that would be accumulated. Let’s have a look at this case study.
- John borrows £200 from a cash till payday loan lender and the agreed repayment terms are within 31 days with an APR of 1737% (the average APR on the market).
- This means that he owes £250, an increment of £50
- After 31days John cannot afford to make the repayment, therefore he asks to rollover his debt, meaning he has another 31 days to make the repayment.
- However this means another £50 increment. Therefore John now owes £300.
- This is £100 on top of the borrowed £200 for the 2 month loan
- This pattern will continue every month that he fails to make the repayment
It is easy to see how debt from payday loans can quickly mount up if you do not follow the agreed terms and conditions set out by your cash till payday loan lender.
In summary, cash till payday loans are an excellent source of short term borrowing providing you shop around for the best deals and meet the conditions of the lender. It is paramount that you do not use the rollover system where you are delaying repayment by an agreed amount of time as this means you will incur a large amount of interest. The implications of this are that the debt will increase and become more and more difficult to repay.
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