Although payday loans come in handy every time you need fast cash, they can be very tricky and hard to get out of. Payday loans are well-known for having high-interest rates (annual percentage estimates to 400%), short repayment period ( usually 14 days), and the ability to be renewed or rolled over. These specific characteristics can easily lead the borrower into an expensive cycle of loan expansion. The payday loan trap is the term referred to, when someone falls into a series of increasing payments that don’t seem to end, after borrowing a payday loan.
Fortunately, there is always solving for any problem and luckily for us, there is not just one but multiple solutions for the payday loan trap.
With that being said, next, we will cover the most efficient ways to escape the payday loan debt.
How to get out of payday loan debt
First things first, it’s imperative to say that if you got enough cash in hand, even if it has been just a couple of days from the borrowing, it’s better to pay off the loan and get the weight out of your chest instead of constantly delaying. Many lenders allow canceling the transaction within one business day at no cost.
If you don’t get to be in that position and neither of the following methods can help you, then it’s better to start from now to either increase your cash income or/and cut expenses and save.
Now, let’s see what other effective strategies can help you escape the trap.
Prolonged payment plan (EPP)
An EPP is an operation imposed by law in many countries including the UK, that favors the borrowers who struggle with the repaying. It supports you to delay the payment date even up to four more weeks. As lenders are obliged by law, you can freely ask them for an extended payment plan or any other short-term alleviation. However, this bounding is not applied to all companies, meaning that there might be lenders that can’t and don’t have to offer you any tender of this kind.
What does debt consolidation mean? Debt consolidation loans are other types of loans meant to have lower interest rates, longer repayment periods, softer fees, and better repayment terms overall. In that way, it is much easier to take another loan and repay the payday loan entirely. There are several good options, but personal debt consolidation loans are the best pick for this matter. Despite the only minor downfall ( credit check required), personal loans allow you not only to get rid of the existing loan but to pay off any other high-interest debt (such as credit card balances) as well.
Personal loans are much more predictable and easy to manage, therefore you can easily get one that fits your budget to repay everything and then, slowly and effortlessly pay it, without having to worry about not being able to pay it on time.
Instead of rolling over and renewing the actual payday loan, it’s handier to get a payday alternative loan (PAL) that does both, meet the requirements that payday loans have and provides better repayment costs and terms. Unlike personal loans, these short-term PALs don’t require credit checks, in fact, they focus more on people with bad credit, therefore it is more likely for them to be the first ones approved. Although these loans were first designed to be a better version of payday loans, people usually take it to pay the existing loan. You can borrow as much as £1,000 and pay it back in a ‘long’ period of six months. The annual interest rates can get up to 28% at most. The only requirement is to open an account at the credit union, to pay an application fee of £20, and keep it active for 30 days.
Now that you know the best ways to get out of payday loan debt, it’s up to you to take action and escape this trap.