British consumers turning to payday loan companies for a quick finance fix are being warned to repay the money on time or risk facing high interest repayments.
According to insolvency professional trade body, R3, over 2 million people have turned to payday lenders such as Payday UK and Wonga over the past year. Many customers are drawn to the convenience of borrowing relatively small amounts (between £80 – £1,000) and, in some instances, the payday loan can be in the customer’s bank account within 24 hours.
Whilst borrowing a payday loan can prove cheaper than accessing an unauthorised bank overdraft the interest can accumulate quickly if the money isn’t repaid on time.
For example, Wonga have suggested that a standard payday loan of £100 could result in a repayment value of £187 if no repayments were made for 2 months or more. If the customer continues to default the debt is usually handed to a debt collection agency who will add on admin fees as well – driving up repayment costs further still.
One finance expert commented:
“There is a real danger that customers could fall into a spiral of debt where they have to take out a loan each month just to make ends meets. The golden rule is not to borrow money unless it is absolutely necessary.”