Fast loans (also known as quick loans, payday loans and short-term loans) might seem like a good idea at first. You’re in need of money, and with a fast loan you can get it quite easily. Payday loans are often available even for those with poor credit.
Are Fast Loans Dangerous?
Fast loans are dangerous because they have high-interest rates. These are now limited by the Financial Conduct Authority but it can still be too easy to get into debt that you cannot afford to repay.
Though they may be tempting, fast loans are often more trouble than they’re worth. Dangers include getting yourself deeper into debt, ruining your credit rating and opening yourself up to potential fraud and loan sharks.
When you could have the money in less than an hour, fast loans feel hard to resist. Unfortunately, though these loans seem like a generous gift the reality is much less appealing.
Read on to find out more about the dangers of fast loans.
- – How do quick loans works?
- – What is a logbook loan?
- – Are logbook loans safe?
- – What happens to my loan if I die?
We update all our guides regularly. If you are researching loans and we haven’t got an exact guide that helps you, keep coming back as we update daily.
Fast Loans: Are Payday Loans Bad?
If you take them at face value, payday loans aren’t the worst thing in the world. You’ll get your money quickly and don’t have to be in debt for too long. Industry regulations are in place to protect you, so your debt shouldn’t get out of hand. The reality is slightly different.
Payday loans are usually relatively small. In most cases, customers borrow less than £1000. Some lenders offer fast loans as small as £50. If you need to apply for a loan for such a small amount of money, the chances are that you have no financial buffer. You have no savings to fall back on, and you’re living from payday to payday.
You’re already in financial difficulty, so applying for a payday loan will only add to your trouble.
Payday loans are bad unless you’re good at budgeting and have money left over each month. People in that situation don’t need a payday loan in the first place.
Fast Loans: Why Are Payday Loans Bad?
Payday loans bridge the gap between one payday and the next. With loan terms from as little as 30 days, they’re not intended for long-term borrowing. They’re marketed specifically to people that are struggling to make ends meet every month.
If you need a payday loan, it’s likely you don’t have financial buffers. Perhaps you need to borrow because your washing machine’s broken or the kids have outgrown their school uniforms.
If you don’t have savings for life’s little emergencies, it’s unlikely you’ll have the spare cash next month to pay off your payday loan debt. If you’re already low on cash each month, adding payday loan repayments won’t solve the problems you’re facing.
Payday loans and fast loans are fairly easy to get hold of. If your willpower isn’t the strongest, this might make them seem like an easy choice for non-essential purchases. It’s hard to resist the siren song of fast cash!
Fast Loans Today
In the UK, the payday loan industry has historically been out of control. Borrowers could take out very small loans and end up in unmanageable debt. It was easy to take out several loans at once, sometimes even from the same provider, and build up huge sums owed across high interest rates.
Today, fast loans and payday loans are subject to several different caps. These were introduced by the Financial Conduct Authority (FCA) in 2015.
- Your daily interest and fees are capped at 0.8% of your original loan amount. So, for every £100 borrowed, a maximum of 80p can be added to your debt each day. Bear in mind that’s still an extra £24 of debt each month.
- Default fees, charged for missing a payment, are capped at £15.
- At most, the amount you owe will be double what your borrowed initially. If you borrowed £100, you won’t need to pay more than £200 back. If you borrowed £500, at worst you’ll owe £1,000 in total.
|Loan Amount||Daily Interest and fees limit||Max. Daily interest||Max monthly interest (31 days)||Maximum you must repay|
Caps are there to protect you. They ensure that applying for fast loans online shouldn’t leave you with unmanageable debt. Unfortunately, they can also provide a false sense of security.
If you’re struggling to make ends meet, that £300 you’ve borrowed for a new fridge could be £600 that you’re chased for, all because you got complacent about how you wouldn’t have to repay a huge amount of fees that old payday and fast loans could charge.
Make sure you fully understand what you’re being asked to repay before you sign your agreement, and also check you’ve explored all your options to find the solution that means you’ll end up owing the least.
Fast Loans and Loan Sharks
If you’ve ever considered applying for fast loans, you’ll know that you’re in dangerous territory. For every regulated fast loan provider, there are several that are trying their luck.
If you borrow from an unregulated lender, you’ll be at risk of dealing with loan sharks. They may not follow the FCA’s rules. If you can’t pay your debts in time, you may be threatened or bullied by a loan shark. Since you’re a good source of profit, there’s also a good chance that they’ll encourage you to borrow more money.
If you feel that you really must apply for a fast loan, you should always check the Financial Services Register to find a regulated lender.
Are Payday Loans the Worst?
Thanks to their terrible history, and the trouble they caused for struggling consumers, payday loans have bad reputations. Just the mention of a payday loan can spark feelings of fear and disgust. Surprisingly, they may not be the very worst way to borrow money.
In fact, payday loans may be cheaper than an unauthorised overdraft. That was the case even before the new loan caps in 2015.
Many of the same people that scoff at payday loans would happily dip into their overdraft. It’s easy to feel like your debt is less risky when it’s already attached to your bank account. Sadly, those bank account overdraft fees could leave you with even more problems.
Payday loans aren’t necessarily the worst form of borrowing, which will only serve to make you more confused. If you’re struggling financially, it doesn’t help to know that your options are all so risky.
Though payday loans may not be the worst, they’re certainly not a great option. Payday loans are bad because they only look appealing to those that are already vulnerable. They’re small loans, paid quickly, designed for those in desperate situations.
Alternatives to Dangerous Fast Loans
It’s important to know the dangers of fast loans before you make any borrowing decisions. These short-term loans can seem like a lifeline when you’re already finding things difficult. Sadly, fast loans can be the gateway to long-term debt cycles.
Before you borrow, you should always take time to consider alternative options. Don’t become a fast loan impulse shopper.
Fast loans can bridge the gap between one payday and the next, but usually leave borrowers in increasingly tough situations. £100 borrowed one month is £124 to take from next month’s wage.
You may feel that you need to borrow more to repay your existing fast loan debts, so you’ll quickly end up in a spiral of borrowing with debts getting bigger and bigger.
We’ve produced guides to help you learn more about your borrowing options, including better ways to cope with life’s little financial emergencies. We understand that when your income is low, you might feel like you’re backed into a corner. Though fast loans feel like a convenient way out, they can leave you with increasing debt problems.
Quick Loan FAQs
Your credit score is an important tool in the loan application process. A good credit score opens doors, improving your chance of approval. With a bad credit score, your options are going to be limited. Applying for a loan can be particularly scary if you know that your credit rating’s poor.
Guarantor loans have risen in popularity through recent years. Despite feeling new, these loans fall back on old traditions of vouching for the people you know. To apply for one of these loans, you’ll need someone that trusts you to manage your money.
A logbook loan is secured against the value of your vehicle, a logbook loan provides a way to borrow even if your credit score is poor. Lenders are more likely to approve applications because your vehicle is offered as security.
Quick loans can be very helpful. If you need money quickly or want a fast decision, it’s great to have that option available. But, be aware that quick loans often come with higher interest rates.
How Can Money Savings Advice Help You With Getting a Loan?
Here at Money Savings Advice, we have partnered with some of the UK’s leading loan broker companies. They have already helped thousands of people get the best loan that suits their needs, and they can do the same for you.
Choosing an independent loan broker means they won’t proceed with an application unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these loan brokers who can help you get a loan, then click on the below and answer the very simple questions.