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    Disease called Debt
    Home»Debt Help Articles»5 Situations Where Getting A Payday Loan Would Be Insane
    Debt Help Articles

    5 Situations Where Getting A Payday Loan Would Be Insane

    HayleyBy HayleySeptember 22, 201422 Comments5 Mins Read
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    Payday Loan Trap
    *photo credit

    Payday loan. There, I said that dirty word. Hate is a strong word to use, so I’ll say dislike. Yes, this is how I feel about payday loans.

    I haven’t had one myself (incredibly, given the extent of our debt!), but I really don’t like anything about them, even without hands on experience. I don’t even like the fact that they are extremely convenient.

    In my opinion, payday loans are the very worst kind of debt trap, because they’re so easy to get hold of, but the interest rates are very high, and then there’s some whopping great charges to contend with if you can’t afford to repay a payday loan. I’m with Dave Ramsey when he says that payday loans are a game you’ll never win.

    Payday loans are in the media all the time right now not only because so many people are struggling with them (an increase of 42% in the UK compared to last year), but because of the dodgy practices surrounding some lenders. Take Wonga for example, one of the UK’s largest payday lending companies. Wonga was recently investigated for sending out 45,000 fake legal letters from made up law firms in order to chase borrowers for payment.

    They were told by the Financial Conduct Authority (FCA) to fork out £2.6m in compensation for customers affected. According to research presented by Citizen’s Advice Scotland (CAS), some other lenders don’t properly assess the borrower’s situation before lending to them (as lenders aren’t required to carry out credit checks), meaning that they may not even know whether the borrower can actually afford to repay the loan.

    I really do understand why some people might decide to get a payday loan. Sometimes, there are real emergencies to deal with like huge bills and not enough money left over to pay for food and groceries. At the end of the day, if it’s a choice between literally not being able to eat and keep warm or getting a payday loan to make sure that you can, then of course a payday loan is a better solution.

    But there are other reasons why some people choose to get a payday loan when they probably don’t need one and in my opinion, these reasons are just insane!

    5 Insane Reasons to Get a Payday Loan:

    1. Socialising

    Anyone looking to to get a payday loan in order to continue their social life until they next get paid is potentially taking a huge risk in getting themselves into financial difficulty. Of course everyone likes to enjoy themselves, there’s nothing wrong with that. But for someone who is finding themselves with little or no money at the end of each month, a payday loan is not the answer for keeping up appearances.

    2. One off purchases

    Those big ticket items like a newer car, TV or gadget are all things that some people get payday loans for and ultimately get into further debt for. Whilst it might seem like those type are things are needed, they’re not. Some people might think that needing to pay for a big car repair is enough of a valid reason to get a payday loan, however, I’d urge them to check out other ways of getting hold of some quick cash (like working extra hours or asking a friend for help) before resorting to going down the payday loan route.

    3. Robbing Peter to pay Paul

    One of the worst things about the payday loan trap is the continuous cycle of debt that often occurs. It all starts by not being able to afford to repay a payday loan. The loan can sometimes be ‘rolled over’ to the following month along with a boat load of interest and default fees too. If the loan can’t be repaid the following month, some people turn in desperation to other lenders, to use the money from the new lender to pay back the original lender. Crazy! But I can imagine how quickly a desperate situation like this can arise.

    4. For addictions such as cigarettes and alcohol

    Addictions are serious, there’s no escaping that fact and anyone with an addiction like this should receive help and support to overcome it. Inevitably, some people will resort to payday loans to fund their addictions. What they probably won’t realise (or care about at that point) is that getting into the payday loan trap because of needing to get money for their next fix will definitely make things worse, because of the financial and emotional stress on top of other issues.

    5. Shopping

    Impulse buying, shopping for fun, splashing the cash etc. is all well and good and I myself have got into debt many times for precisely this crazy reason. But using payday loans for this kind of activity really is madness. Not only is the cash being spent on things that aren’t needed but all that interest on top… it doesn’t bear thinking about.

    Payday loans – convenient but dangerous

    The bottom line is that anyone looking for a payday loan is probably going to be strapped for cash and they won’t have enough money to do what they need (or want) to do before getting paid again. Some borrowers may have a poor credit history and could be why they’re turning to payday loans rather than traditional loans or credit cards with lower rates of interest.

    Payday loans might seem like the perfect solution, but before going down that route, borrowers should check out all the other options available to them first. Such as asking for financial help from friends and family, or trying to earn some extra money to see them through.

    If a real emergency is happening, there are food banks like the Trussell Trust here in the UK which can help or the Citizen’s Advice Bureau for information on other sources of financial help. Setting up an emergency fund after everything has calmed down will really help with avoiding financial catastrophes in the future.

    What are your thoughts on payday loans? Have you ever had one?

    *Image courtesy of Flickr

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    22 Comments

    1. Brian @DebtDiscipline on September 22, 2014 11:27 am

      I have never had one, but think they would be bad in ANY situation because of the high interest rates they carry.
      Brian @DebtDiscipline recently posted…FinCon Fiesta!My Profile

      Reply
      • Hayley on September 22, 2014 8:17 pm

        Agreed! I’m glad you’ve never had to go down the payday loan route Brian.

        Reply
    2. Jayson @ Monster Piggy Bank on September 22, 2014 11:35 am

      never had a payday loan. I know someone who got one just to buy a smartphone. You what happended to her? She learned the greatest lesson of all because she paid that high interest! It was really an eye opener not only to her but also to me.
      Jayson @ Monster Piggy Bank recently posted…Why Using a Brokerage Firm is a Worthwhile InvestmentMy Profile

      Reply
      • Hayley on September 22, 2014 8:16 pm

        Ouch, this is exactly the kind of reason that I was thinking of when I wrote this post Jayson. I’ve been tempted into debt before for many reasons so I’m not one to talk, but payday loans are the worst kind of trap. I hope your friend managed to get her loan paid off really quickly!

        Reply
    3. Tre on September 22, 2014 12:05 pm

      Payday loans have been regulated here to protect consumers. Many of the shops have closed because they can’t charge the outrageous fees anymore.
      Tre recently posted…Weekly Update #14My Profile

      Reply
      • Hayley on September 22, 2014 8:15 pm

        That sounds like a very good thing, some of those places closing down!

        Reply
    4. Kalen Bruce on September 22, 2014 2:24 pm

      I’ve never been sucked into a payday loan, but I have worked with someone who had 7! At the same time! It’s craziness. I think it comes back to the mentality of “it’s just this one time”, but then it happens over and over….every time you can’t make your payments. You’re better off not paying your bill than taking a payday loan in almost all cases.
      Kalen Bruce recently posted…Why You Should Always Read Your Insurance Policies CarefullyMy Profile

      Reply
      • Hayley on September 22, 2014 8:14 pm

        Oh my word, 7 payday loans?! That is a really scary situation to be in and I hope that person has now managed to escape the payday loan trap!

        Reply
    5. Kayla @ Shoeaholicnomore on September 22, 2014 4:50 pm

      I’ve never had one either – thank goodness! I knew they were bad and I’m glad to say I’ve stayed away from them!
      Kayla @ Shoeaholicnomore recently posted…I Financed my ComputerMy Profile

      Reply
      • Hayley on September 22, 2014 8:14 pm

        Good for you Kayla, I’m pleased that you’ve not had to deal with them! 🙂

        Reply
    6. Done by Forty on September 22, 2014 7:33 pm

      Man, I hate these places. I don’t have much to add to your excellent post — I do think that people are generally robbing Peter to pay Paul though.

      IMO, I think these places ought to be made illegal. (And in my state of Arizona, they were!)
      Done by Forty recently posted…Social Capital vs. Financial CapitalMy Profile

      Reply
      • Hayley on September 22, 2014 8:13 pm

        Thanks DB40, I think there will be some tighter regulations in place soon around payday loans here in the UK, but they should come with a risk warning, bold and clear.

        Reply
    7. Aldo @ Million Dollar Ninja on September 22, 2014 7:54 pm

      You should avoid pay day loans at all cost (no pun intended). There are much better ways to get money to pay for those bills if you have to. Pay-Day loans are a no-no, but I understand why some people feel like they need them. I just hope people are not getting a pay-day loan for the reasons you mentioned above… that would be insane indeed.
      Aldo @ Million Dollar Ninja recently posted…Frugal Dates: NYC High LineMy Profile

      Reply
      • Hayley on September 22, 2014 8:12 pm

        I agree Aldo, they should definitely be avoided! The sad thing is I’m sure that some people do get a payday loan for non essential items, purely because they’re not aware of the risks that can arise with payday loans.

        Reply
    8. debs @ debt debs on September 23, 2014 12:00 am

      Some people say credit cards are evil. I say pay day loans are evil…. and credit cards aren’t any better if you can’t pay them off monthly. I saw a roadside sign at one yesterday – $300 for $20, talk about a misleading billboard.
      debs @ debt debs recently posted…Frugal FinCon Fiesta – Ask me AnythingMy Profile

      Reply
    9. Debt and the Girl on September 23, 2014 1:14 pm

      I have never gotten a payday loan so I am not the best person to ask.I have heard they can be very awful and I have heard some say that they were really a life saver if paid quickly. The interest rates do scare me though.
      Debt and the Girl recently posted…Are You Richer than the Average Millenial?My Profile

      Reply
    10. Glen @ How To Save Money on September 24, 2014 12:21 pm

      I’m not a fan of the old payday loans at all. Everything can get out of hand so quickly with them as the interest rates are often just insanely high. Still, plenty of people still go and take them out, so perhaps I am missing something.
      Glen @ How To Save Money recently posted…Money Q&A with J. Money (Budgets Are Sexy)My Profile

      Reply
    11. Kassandra @ More Than Just Money on September 26, 2014 6:18 pm

      I never considered payday loans as even a remote option during my debt heyday but way too many people do and then can’t figure their way out of the horrid cycle. The interest rates alone would cause me to run screaming. I guess for the people who do use it, it’s about getting the cash immediately and then waking up to reality.
      Kassandra @ More Than Just Money recently posted…Plan Your Way To FinCon 2015My Profile

      Reply
    12. John McKinney on October 3, 2014 3:49 am

      I’ve never actually heard of a single person recommend a payday loan for anything at all. I often wonder why these places exist. They’re essentially legal loan sharks.
      John McKinney recently posted…Comparing term life insurance rates: What you need to knowMy Profile

      Reply
    13. Richard on October 6, 2014 7:19 pm

      Hayley,

      I truly loathe payday loans. I used to work with a guy who basically used one every month just to “survive” – and by that I mean he got paid, paid off last months loan, went to the pub for a week or two and then realised he was broke. Then he took out another loan to make it to payday and so on. Every month. Getting more and more into debt as the interest payments piled up. Crazy stuff.
      Richard recently posted…Comment on What Are The Best UK Credit Cards For Bad Credit (In 2014)? by Carnival of Financial CamaraderieMy Profile

      Reply
    14. Rob on October 16, 2014 11:12 pm

      Hi Hayley,

      As you know I had quite a few payday loans for insane reason number 3. Whilst they were to become the trigger for my financial implosion and whilst I personally hate them, they plug a gap in the UK Market that wasn’t being catered to.

      Used by the wrong people they can be a complete disaster and make a financial situation much worse. However for someone who is more sensible with money and perhaps has a short term issue, they can be quite useful.

      It all comes down to financial responsibility and being sensible. Used wisely you will be fine but if you abuse them for the reasons you set out above you are setting yourself up for a lot of trouble.

      Reply
      • Hayley on October 17, 2014 11:51 am

        Hi Rob, thanks for this balanced perspective on payday loans – I agree – it boils down to whether or not someone can use them responsibly or not. It’s quite possible that someone has found a payday loan useful and paid it back with no problems at all. These loans do scare the living daylights out of me though! 🙂

        Reply

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