A short term loan of a small amount that carries a high interest rate and is due on an individual’s next payday is called a payday loan. These types of loans were first formally offered to the general public in the US. The concept of payday loans soon became popular around the world and they are now also available in the UK. The payday loan industry is growing by leaps and bounds and has experienced exponential growth in the past decade. It is estimated that around 3.5 million people have availed the payday loan service in the year 2015. Also, the numbers of payday lenders in the UK are estimated to be around 200. Here are six reasons as to why payday loans that carry such high interest rates are still popular in the UK.
1. To pay off another Debt or Bill
Well, this is the most obvious reason why payday loans are popular in the UK. If you default on your credit card bill, utility bill or any other form of debt or financial obligation, then your cost of borrowing money in the future will increase tremendously. So, in order to save oneself from such a situation, payday loans are seen as a quick solution. The money borrowed from payday lenders is then returned on the day the salary is credited to the borrower’s account. If the borrower fails to honour their financial obligation on the due date, then the interest will keep accruing and the penalty of £15 per day will also be imposed on the defaulter.
2. To go out Shopping on Seasonal Holidays
If you haven’t got a single quid in your account and the seasonal holidays have begun then unfortunately you cannot borrow money from the bank as the bankers are on holidays too. In such a situation availing payday loan from online payday lenders is common and is easy. Christmas season is considered as the peak season for payday lenders. This is when people borrow money so that they can go shopping and buy gifts for their relatives. The money is then returned to the payday lender at the beginning of next year as soon as the pay cheque arrives.
3. To Avoid Embarrassment
Only small amount of money ranging £500 to £3,000 is lent by payday lenders. This amount can also easily be borrowed from one’s family members or friends. But many people who feel ashamed by the idea of borrowing money from their relatives and close friends avail the services of payday lenders. This is not a good decision and an individual must try borrowing from their relatives and friends and treat payday lenders as lender of the last resort. By borrowing money from your relatives you can also ditch the abnormally high interest rate and pay back the principal amount on your next payday.
4. For Medical Emergencies
Not everyone living in the UK has medical insurance that will cover their medical bills. In such a case, payday loans can really come in handy and you can pay off your medical dues by borrowing money from payday lenders. Most online payday money lenders require you to fill a short form and follow some simple steps after which money is credited to your account within 15 minutes. Remember that if you do not pay your medical bills on time then the interest will keep on accumulating on it. Thus it’s better to clear your medical dues on time by borrowing the money from payday lenders and then pay the borrowed amount on your payday so that your name do not appear on a defaulter’s list.
5. Bad Credit Score
Have you ever defaulted on the loan that you’ve borrowed? If your answer is yes then chances are that a banker will not entertain your loan request let alone lend you the money on high interest rate. This is because a default reduces your credit score and makes you less financially fit in the eyes of the banker. Under such circumstances, you will not have any other option but to borrow money for short term from payday lenders or fro pawnshops.
6. To Use Money for Betting
We Brits love betting on sports, world events and even on the financial market movements. In the UK, many people borrow small amounts of money from payday lenders just to try out their luck in gambling. Although the interest rate charged is high but if the person wins in gambling then it will be enough for him to return the principal and the interest and still save some money. Remember that you must only borrow that amount of money which you can afford to lose otherwise if you lose on your bets, you might find yourself in hot waters.
So, here we are. We’ve looked at some reasons for which individuals borrow money from payday lenders. One thing that we would like to point out is that many people believe borrowing money from payday lenders is a viable option when one is unemployed and struggling to make his both ends meet. But the case is quite the contrary. Many financial experts discourage individuals to borrow money from payday lenders when they do not have any source of income. This is because if they default on their payment then the interest will keep on compounding and the penalty of £15 per day will be levied upon the defaulter and they will find themselves entrenched in the debt cycle which is very hard to escape from.
Now before you borrow money from a payday loan provider you must compare the loan providers so that you can choose the best deal available in the payday loan market. We at quiddicompare provide our users with the facility to compare all the well-known, reputed and trustworthy payday lenders and their APR rates. Visit our website today to find out the lender that best fits your requirements.