Beware The Payday Loan Warns Fool
Tuesday, December 2nd, 2008
As Britain teeters vertiginiously on the precipice of a recession, the Motley Fool has warned consumers to be sure that payday loans do not tip their finances over the edge.
The independent financial advice site has warned that while payday loans may offer short-term respite during difficult economic conditions, the market is unregulated and as such, people could find themselves paying “ridiculously high” annual percentage rates (APR) should they opt for this form of borrowing. The group also warned that as economic activity has weakened, internet advertising of payday loans is becoming increasingly aggressive. As such, payday loans were identified as one of five “recession vultures” to be avoided during this time of lank economic performance.
Among the other products to be avoided this winter in a bid to avoid leaving finances left out in the cold is the logbook loan, the Motley Fool stated. This form of lending, which is similar to a payday loan, are also entirely unregulated and can end up being “horribly expensive”. So too, because these are secured loans, consumers could find that their car is taken away should a borrower struggle with repayments. And the debt trouble may not end there, the site warned, as people may be pursued by collectors if their motor does not raise enough cash at auction.
The group went on to state that while many may be in need of help in such a scenario, they may do best to stay away from providers of individual voluntary arrangements. In such an agreement, people are often required to hand over 100 per cent of their disposable income for five years, in addition to releasing equity from their home.
Another addition to the vulturine financial products identified by the Motley Fool was the credit card cheque, which are often sent to customers for use in shops which do not accept card payments. It noted that while these products may seem convenient, high transaction fees could leave people feeling short-changed.
The firm concluded its list of products to avoid at all costs with the store card, which often attempt to entice people with cheap promotions. In fact, research has identified that some store cards charge APRs in excess of 50 per cent.
Ed Bowsher, financial expert at Fool.co.uk, commented: “All of us are becoming increasingly concerned about our finances but it is important not to panic and to stay alert to avoid getting into more financial turmoil. It is important consumers read the small print when considering any financial product. If it looks too good to be true, it usually means it is. If you are tempted by these products, seek independent advice before purchasing them, especially if they look suspiciously tempting. At times like this many financial solutions might appear to be an ideal quick fix.”
Earlier this year, the National Debtline also urged people to stay away from payday loans after figures from moneysupermarket showed that there were an increasing number of payday applications made throughout the UK.
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