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Jersey Consumer Council

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Payday Loans

October 26, 2015 Money Matters No Comments
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Payday Loans

Payday loans are short term loans that are often used to get through a rough spot. Unfortunately, there are very few situations in which these loans actually end up being helpful. Before you use one, make sure you understand the costs and risks. Here’s a quick overview of how payday loans work, and ideas on how to avoid them.

If you can’t repay your payday loan when it comes due, you can “roll it over” so that the loan is extended. You don’t have to repay it, but fees keep accumulating.

In general, payday loans are extremely expensive. You end up paying an annual percentage rate (APR) that may be several hundred percent.

The main pitfall with payday loans is their cost. Due to extremely high fees, they don’t help you solve the real problem. If you’re having financial difficulties, payday loans can only make things worse. You’re paying a really high rate of interest which means that your expenses are just going up. As a short term strategy – maybe once or twice in your life, if that – payday loans can get you through a rough patch. For example, you might need an emergency repair for your car so that you can get to work and keep earning income. As a long-term strategy, payday loans will pull you under

Instead of using a payday loan, consider some alternatives:

  • Build up an emergency cash fund in your savings account (sometimes easier said than done)
  • Build credit so you can borrow from mainstream lenders (in moderation)
  • Keep an open credit card for emergency expenses
  • Get a signature loan (or unsecured loan) from your bank or credit union
  • Pick up a part time job for extra cash
  • Negotiate a payment plan with your lenders (ask about loan modification)
  • Investigate overdraft protection plans for your checking account
  • Try peer to peer lending services for a better deal

If you need to consider a payday loan, it is a good indication that your finances may be in disarray and need re-structuring. In this respect the Citizens Advice money advisers can help. Please contact us on 0800 7350249, email us on advice@cab.org.je find our website on www.cab.org.je or come in to see us at St Paul’s Centre, New Street, St Helier, Monday to Friday 10.00am to 3.00pm.


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