The Payday Loan Trap: Don't Get Caught

Payday loan commercials tell you it's quick and easy to borrow: you write a post-dated check and they give you cash on the spot. They hold the check, and don't cash it until your next payday. The commercials don't mention that you're paying outrageous amounts for the loan. Payday lenders know that if you didn't have enough money this payday, you probably won't be able to pay your other bills, plus the loan, next payday.

They count on you to roll the loan over. And over. And over. That small fee quickly adds up to a sum larger than the original loan.

Many years ago, just after having finished my studies I was a little short on cash, and decided to respond to one of those "Get £500 today!" e-mails. The next morning, I had £300 in my account. Pretty soon, I had around 10 loans, basically taking one to pay another, and barely able to afford my car payments.

 

It's really weird because when you owe like 300...you say to yourself...well I have three hundred on my card already, so what's the difference if I owe 3 or 4 hundred. So you spend a little more. Then hundreds grow to thousands and you say to yourself...what's the difference is if I owe 3,000 or 4,000. It's a really bad thought process. So I accumulated a ton of credit card debt and then had to live for years the poor life...scraping for money and trying to make ends meet with everything in the world getting more expensive every day. It's an adjustment because, like I said, I lived off my credit card and had a care free lifestyle for like 5 years. Man, if I could go back I would do things a lot differently.

I made decent money in sales, but my entire paycheck ended up going to pay those insane loan fees.

The problem is, these loans became an addiction. Almost like a drug. It's so easy to get the money in your account, but it's not so easy to pay it back.

Anyone thinking of getting one of these loans - Don't think twice - Don't think about it at all. They're torture. I find myself thinking, "I could use some extra cash. I can just find a loan..." And then I have to fight myself to keep from doing it.

I have learned that there is no shame in saying that you can't afford something. There can be a lot of shame and embarrassment in trying to afford something that you can't! I now know that "quick" financial fixes don't work...it will take hard work, diligence and discipline to put us back on solid ground! It will also be a good lesson for our boys! Learn to say NO!

'Typical 336.6% APR at - Phew, is that legal? No, I meant the advert was a mistake - is should be 13.36% surely?'

No. The advert on the Logbookloans.co.uk site is correct. The interest charged on the loan example quoted is 333.6% APR. I've checked the calculation.

As far as I am aware, in the UK, there is no maximum limit to the interest charged. This is in contrast to some US States, where loans with an APR of over 100% are unenforceable i.e. you could not get a judgment against you for failing to pay such a loan.

Note however, that the legal definition of APR is different from country to country, and in the UK, it is different from the 'interest rate'. A £1000 interest only loan with 10% interest rate, would charge £100 per year. However, the APR when calculated according to the legal definition is higher than this. For a rate of 10%, this is a relatively small difference (a fraction of a percentage point). But for high interest rate loans (e.g. 100% p.a.) then the APR goes up exponentially (my recollection is that this loan example has an 'interest rate' of around 170%).

The narrations which follow are true stories from real people who have lived them - the names have been changed for privacy reasons. It just shows that while you might know what debt can do to you - it's hard to break that habit!

My Escalating Debt - Sue

I remember as a child my parents filing for bankruptcy and arguing about money late at night. We lived in a small town; you know the kind where everybody literally knows everybody else. People would drop off bags of clothes, shoes and other things for us kids to help out. Needless to say we got teased by some of the kids at school for wearing their old clothes. We got through it and it made us stronger as a family. My mother taught me how to manage money when I was 16 by giving me an allowance of £5.00 a week (that was all she could afford to give) and making me budget it. It had to pay for gas money to and from school, lunches and going out on the weekends. It didn't go very far and I wasn't allowed to get an after school job. My sisters had when they were in high school and couldn't keep their grades up. I really didn't like babysitting and didn't want to do it anymore so I had to get creative. I bought a rundown Toyota cheap at a junk yard with babysitting money I had been saving since I was 12 years old. My dad helped me fix it up and I started giving other kids rides to school for £5.00 a week. This gave me another £20.00 a week to spend. I learned how to budget myself and save for what I wanted at an early age.

When I got married 15 years ago I was bound and determined not to fall into debt. Then I found out about my husbands old debts while trying to buy a car. I worked out a budget and started paying them off. By taking control of our finances and basically giving him a set allowance to spend on nonessentials we were debt free in less than 2 years. We bought a house, 2 vehicles and had an excellent credit rating.

Then we found out I was pregnant again. I was put on bed rest for the duration of my pregnancy and was unable to work. I was not allowed to handle our bills as it sometimes stressed me out and I would begin having contractions. My husband took over our finances. He got credit cards and store cards then didn't make payments. We fell behind on every house hold bill including our mortgage. He didn't write anything down in the checkbook register and started bouncing checks. Meanwhile hiding all of this from me so that I didn't lose the baby. When I took over the finances again I was shocked. His solution was to call his parents and get money from them. They're well off and had always bailed him out of money trouble in the past. Which is the reason he doesn't know how to manage money. They sent the money of course and he learned nothing. I won't allow him to borrow any more from his parents. I have been working 2 full time jobs off and on ever since trying to get us out of debt. We ended up losing our house and getting one of the cars repossessed. We get things paid down and something always happens to make it go back up again. I closed the checking account and pay everything in cash or money orders.

I have a hard time not buying the boys new school clothes. I should go to the thrift stores but I just can't make myself. No matter how much my parents loved and supported me I always felt inferior to the other kids because all my clothes were used. I never want them to feel that way. I've used our bill money for clothes and for gifts if I haven't got enough saved. I also enjoy shopping and don't dare go into a store without a list and only enough money to get what we need. I'm an impulse buyer and can spend my whole paycheck and not even realize it until I get the transaction total.

About 3 years ago our credit rating had improved and I got 3 low balance credit cards to pay bills online and for emergencies. We had a teenage girl living with us; her mother had kicked her out when she was 12 yrs old. When she was 14 I found her sneaking into my grandmother's barn to sleep at night. I guess she had been doing that for several months. My husband and I decided to take her in and she was a good kid always following the rules. We never had any problems with her so when she got a date to the prom we went all out. I maxed out 2 of the credit cards on her dress and accessories. Yes, it was incredibly stupid and shortsighted. But she'd been through so much and we wanted her to enjoy herself, to be the kid her early life had denied her the chance to be. She did to, and looked absolutely gorgeous. I'd do it again just for the smile she couldn't get rid of for over a week afterwards.

I had a good job and was making the payments with extra to pay them off quickly. My husband was laid off from his job the year before and hadn't been able to find work. He did odd jobs for people and made enough to help out. We were slowly getting back on our feet. This is of course when something had to go wrong. Business dropped and I got laid off. I went on unemployment for the first time in my life. I was still able pay bills and make minimum payments on the credit cards. I've never had a problem finding a job. I usually have 2 so I was confident I would be back to work in no time. I was wrong, nobody was hiring they were to busy laying people off. I didn't find another job until 3 months after my unemployment ran out. I also was too prideful and refused to apply for food stamps, using the credit cards instead until they were maxed out again. With no other choice I swallowed my pride and applied for them. It's amazing how stupid your pride can make you behave. I was still embarrassed to use them though and made my husband do all the shopping. I found another job that lasted 8 months and was laid off again. This time it only lasted 4 months. I got tired of being laid off and not being able to find a job so I made one for myself. I started my own housekeeping service. I make enough to pay the monthly household bills. My husband has also started working for himself. It's taken almost a year but we have finally gotten the 5 months overdue rent plus the other over due household bills Paid up and current. I want to start saving so that we have enough to fall back on in an emergency. But I would also like to start paying off all of the old debts that have been building up over the years. I would like to set a good example for my children by paying them off in full and not taking settlements. In the winter business goes down and so do our profits. I have a feeling its going to take at least a couple of years to dig our way out of the whole we're in.



Young and Dumb - Clarissa

I never thought it could happen to me...

I always thought that I was responsible when it came to credit and money. I never took on more than I could handle. Then the day came when I would just apply for any type of credit card because of a free gift or discount. Pretty soon I found myself with about a wallet full of credit cards. No big deal I thought!! After all I still lived at home until I was 23. So all my money went to paying my bills. Then my fiancÚ' came up with this remarkable plan - - lets get our own place. At the time it was a brilliant idea. I could move out of my father's home and we both had decent paying jobs at the time. That started my road to endless debt. My fiancÚ was constantly going from one job to another sometimes being unemployed for months at a time. I kept my job and still have the same job almost 6 years later but the debt keeps growing. We ended up getting married having three kids and are living paycheck to paycheck and usually it is mine. We have even had two cars repossessed. Then I came across what would seem like a beautiful thing. Payday loans!!!! I was in a bind with rent daycare utilities and my car payment. First I received 500 and then I just kept applying for loans because I needed to cover the finance charges on the previous loans. Now I have defaulted on around 9 payday loans and they are threatening to garnish my wages. I try to keep my head up, but it's hard. Sometimes I dread answering the phone at work because I fear it is a collector wanting more money. I have been so desperate that recently I almost made a huge mistake. A company by the name of Credit 1 Financial stated that I was approved for a 10,000 personal loan. The catch was that I had to pay 4 months in advance totaling almost a thousand dollars. But after doing research on the company I decided against it. Now I am just praying that I can get back on my feet again and get these payday loans paid and all the collectors off my back.



My RollerCoaster Story - Diane

I'm going to tell my story with the hope that it helps some people become aware of some of the mistakes I made, and it will perhaps prevent some from making the same ones.

My first memory and experience with payday loans is from high school. My mom was a single mom after I turned 14 when my parent separated. This was a great thing for me, because my dad and I fought constantly, and when I was finally "old enough" my mom explained to me that she never really loved my dad, but she only married to have a baby because she was getting too old, of course, back then, 35 was considered too old to have a baby. So, after giving it a lot of thought, my mom decided to separate from my dad, thinking it was going to be better for all of us. It was for a few years. My dad was very supportive of me financially and emotionally. He called me all the time, and even after he moved a few hours away, he came to see me all the time, I went to visit him, and we got along really well...better than ever before! The only problem with all of this was that my mom, while receiving money for child support, was still behind on all the bills because of course, my dad's income helped tremendously, and now we were only getting a small portion of that income. My mom used to get payday loans from the local convenience store. She always paid them back the very next paycheck though. We were never in the hole I ended up in later!

So, after a few years my dad began seeing less and less of me. Once I turned 18 and graduated from high school, he became extremely distant. He hardly called, he stopped paying child support, even though I still live with my mom. And I know that is the law, I mean, he didn't have to keep paying after I turned 18, but he did still have to be there for me, and he was not. I went about a year after high school before getting a real job. I didn't think college was for me, because I had no idea what I wanted to do with my life, and I assumed that since I didn't know that I shouldn't waste time or money in college because, what if I didn't need college? So, I got a job at our local AIDS Service Organization as a part-time file clerk. I learned so much about the disease, the people that live with it, and the office environment in general. I realized there that I wanted to make a difference in the lives of those struggling with disease or any sort of hardship, but I also knew that social work was not my forte. So, I still was not sure how I was going to help.

I met my current boyfriend after I had been working at the AIDS Foundation for about a year. He placed such high value on education, and convinced me to go to college, just for a semester to try it out. I enrolled in the local community college and realized that I LOVED COLLEGE!! I made straight A's my first semester, I was 21 and I felt a little old in all my classes, but I think that by starting late, it made me want to finish that much more. During this time, my father became more and more distant. The turning point in our relationship was when I asked him to help me pay for college. I was unfairly terminated from my job at the AIDS Foundation in April 2003 and I had missed the deadline to apply for financial aid, and so I asked him to help me with a few hundred dollars for 2 classes. He refused, giving me some bull**** reason about me having to "prove myself" to him first. So, I ended up borrowing money from my boyfriend's parents. They were really great, not asking me to repay them right away, but at the same time, I had just lost my job. I went the whole summer just doing temp office jobs here and there, but it was never enough, especially since I had a car and insurance payment, as well as credit card payments. I stopped paying all my credit cards, and the harassing calls started. I took out my first payday loan from an online lender, Quikpayday.com. I know many of you have dealt with them. It started out ok at first. I would extend the loan once or twice, and then get lucky with a more long-term temp job and be able to pay it back. It wasn't much, just £100 a few times and £200 once. I stopped as soon as I got a permanent job in September 2003. I didn't turn to payday loans again for another year.

So, a year went by and my boyfriend and I moved a few hours away from home because I transferred to a 4-year university to finish my degree. It was now September 2004. I got lucky and found another job at a non-profit in the area. They pay pretty well. £11/hr., but this isn't enough when you've got rent to worry about. I was living at home with my mom before, and this living on my own thing was a whole different ball game. I began to take out 1 or 2 payday loans at a time. I would pay them back, and it wasn't out of control. But in January 2005, both my boyfriend and I had our credit cards stolen, totaling £2000 in charges. While our bank helped reimburse us at first for most of it, we had to pay for some of it. So, I ended up taking out more and more payday loans. My boyfriend makes good money, and just assumed I was ok financially because he always wanted to go out and spend money, and I had to appear that I could keep up with him, even though I couldn't. He planned a trip to NYC for March 2005. I lied and told him that I'd be able to afford it, and I ended up getting payday loans to help cover the cost of the trip.

Long story short, I never caught up.

It got increasingly worse. I ended up with 12 payday loans by the end of that summer 2005. I finally got really desperate and turned to a shady online loan company who said they would loan me £5000 for a £500 deposit, and like a dummy, I paid it. I lied to my mom about the use of the money, and borrowed it from her, thinking I could pay her back as soon as I got the loan. Of course, it was a scam, and I never heard from the company or saw my money again. The name of the company was Financial Solutions International. STAY AWAY FROM THEM IF YOU COME ACROSS IT! Or any other "deposit required" loan for that matter...they're ALL SCAMS!

I dug myself in deeper. I finally broke down and told my mom about it. She sympathized and loaned me £2500 to pay back some of the PDL's. But because I was so ashamed of how much I owed, I didn't tell her the full amount. So, with that £2500, I got rid of about 9 of them, but still had 3. And we all know how 3 can become 6 in a couple of months, right? So, I dug myself back in, and because I had already promised my mom "no more payday loans" I felt bad to ask her for the money.



My Debt Story - Polly

It was my own ignorance and irresponsibility that got me in this payday loan mess. I fully admit that. With that being said, the further that I probe into these companies, the laws that either exist or do not exist, I get really angry.

Last year I was having a minor financial difficulty, and I sought temporary help. The payday loan industry preys on those of us who are stuck between poverty and middle class. Those of us who live pay check to pay check, struggle to pay our mortgage, and choose what bills are priorities, and which ones can be set aside temporarily so that we can buy groceries. When I went in for my first loan, they were counting on me having to come back and renew in 2 weeks. They lent me more than I made in a 2 week time period, and then the fees were on top of that! I realize that this company I first dealt with was operating within the scope of the law, but where is the morality? How can someone sleep at night knowing that they are profiting from a 400% interest rate, and their clients are probably wide awake with stress and anxiety? How can someone morally lend someone more money than what they can pay back in 2 weeks? My payday became my debt day and it went on for months. I had to keep taking out loan after loan to cover the existing loans. I got rejected from an internet lender that I had perfect credit with, (I had borrowed twice, and paid them back in full) because of too many teletrack inquiries, (thank god for them, because that was my wake up call) and alas I was already a client with an outstanding loan at every single store in my area. I had nowhere else to borrow from, and I was 6k in debt. I had no choice but to stop paying, because I spent an entire pay check in January on fees, and I had no money for groceries, gas, or bills. My checking account is nearly a grand in the hole from NSF fees. I know that I will eventually be sued by many of the store front lenders, and my check will be garnished. I fear that I will eventually lose my home. I am scared to death. It is hard to type all of this into words, because I live most days in denial of the situation that I am in. I am a single mom of two children, and if I cannot provide for them, there is nobody out there to reach out too. I am far better off than many single moms, in that I own my home and I have a good career, but I fear that in 6 month's time my life is going to fall apart.

By doing this research into these companies, although it is insignificant in the grand scheme of things, it is my little way of coping with my emotional distress. If I can help a few people who are in the same boat that I am right now, it makes me feel better about my situation. This message board has definitely restored my faith in humanity. There are so many kind hearted people out there with a willingness to help others. It is refreshing since we live in a world where businesses and our government want to screw us over daily. I've always lived by the golden rule, yet when it came to these internet lenders when I realized that they are not operating legally, I do not feel guilt in settling with them myself, and helping others to do so. I need to get a game plan together on how I am going to pay the store front lenders. I need to get myself out of this denial that I am living with and charge at it head on.



Poor Me - Rebecca

Looking back, I am, what I call, a "Married-Single" mom. Although married, I had the full responsibility of raising four boys. Towards the latter part of my marriage, I was fortunate enough to become a Medical Transcriber and work from home. This allowed me to earn my own money to get the boys some of the basic things they needed, as well as be there for them as they grew up. My husband came into my home office one day and totally blew me away. He said, "I think we made a mistake," meaning He had made a mistake and it had taken him 20 years to realize it! He finally convinced me that he had indeed made a mistake and I decided to file for a divorce. During the divorce settlement process, I lost my job and my soon to be ex wasn't willing to pay up on the terms we had agreed on. I ended up having to file for bankruptcy and the only thing I owned outright was my 1990 Dodge truck, which I still am driving to this day.

It was almost the end of the year at that time, and he still owed me a couple of thousand dollars, but was not willing to part with it. I could have taken him for everything he owned, but I only wanted my fair share. I didn't think that was too much to ask after 20 years of marriage. I ended up having to threaten to take him to court for the rest of what he owed me before he finally paid up. I used that money to find another job and gave some to my sister, who had graciously allowed me to stay with her until I could get back on my feet. If it hadn't been for her, I honestly don't know what I would have done.

It took almost a year to find work. My brother-in-law told me that a front desk position was going to be available at the company where he worked and he suggested I put in my application. I did and was hired for the position. I felt like things were finally looking up for me and I had already set a goal to own my own home. I worked for a few weeks before finding the little (and I do mean little!) house I now rent. I was only bringing home £260 a week, but was able to meet the rent and other bills without a problem, even able to put extra in my checking account. Naturally, disaster hit about this time. The transmission went out in my truck and was going to cost about £1,600 to replace. I had to wait until tax refund time and add that to what I had managed to save to pay for it, but I needed my truck. I had to start from scratch again, but the goal of owning my own pushed me forward. After three years had passed since my bankruptcy, I was given advice to try to build up my credit and was told I should apply for a credit card. I was finally able to get one with a £500 limit. The low limit was perfect for me and although I did use it from time to time, I never let it get to the limit. I did eventually end up with 3 cards, but kept up my payments and didn't go over the limit. I had succeeded in building my credit score and was even looking into houses to buy with the help of a realtor friend of mine. My credit wasn't great, but I did qualify for a home loan and was getting excited about reaching that goal! Then, disaster hit once again. Last winter we had a severe snow storm. We had a little over 3 feet, that's FEET not inches, of snow on the ground!!! I couldn't even open my door to get out if I had to and had to miss two days of work that week. My take-home pay that week was only £175!!! Long story short, the credit cards went to the limit and over and I've been playing "catch-up" ever since, but not very well.

My phone was cut off and I even had my electricity shut off for 3-1/2 weeks and they had turned it off the day AFTER I had been to the grocery store. I came home from work the following day to an EXTREMELY quiet home and all the food I had purchased the day before and put in the fridge was ruined and had to be thrown out! Then the calls started. There were 15 to 20 calls a day, 7 days a week AND on holidays!!! They were even calling me at work, putting me at risk of losing my job!!! I would send payments when I could, but was being buried in late fees, over the limit fees and interest fees. I did decide to answer one of the creditors that called and FOUR times I was told FOUR different things and given FOUR different amounts that were acceptable as payments. The first acceptable payment was £8, then £35, £56 and finally £89! I was told I qualified for a "re-age" program at first, then told I didn't, then I did and finally I didn't. I was SO frustrated that I saw my goal of owning my own home slipping away fast. I was so downhearted and depressed I didn't know what to do. I was ready to give up and call it quits on owning my own place, but there was still a little glimmer of hope deep down inside. But when I was able to reconnect my phone and have my electricity turned back on, that hope started to grow again. I'm managing most of my debt by myself right now, but I am finally seeking help with two of the biggest interest-bearing credit cards that I have. I would not recommend either of these companies to anyone!!! I do still have one credit card I plan on keeping and this one is under the limit and not being used at this time. I am hoping to get help with the two big cards so I can again look forward to reaching my goal of owning my own home!


Consolidating your Loans and Credit Cards APR's

Choosing the wrong personal loan can cost you thousands, there are huge savings to be made by shopping around for a low-cost personal loan. For example, borrowing £8,000 over four years without rip-off payment protection could cost you as little as £924 in interest.

However, choosing the wrong lender and the same loan could cost you almost £400 more in extra interest. Adding payment protection sees your bill climb to a whopping £3,234, which is £2,310 more than a Best Buy unprotected loan, or over £800 a year more. Ouch!

Earlier this year, I checked the interest rates charged by over three hundred different credit cards. My research revealed that the average annual interest rate on purchases was 15.6% APR, while rates for cash withdrawals were up to 10% a year higher. Given that the Bank of England's base rate is currently 2% a year, credit-card issuers are charging borrowers well over the odds to carry balances on their plastic.

My advice to these cardholders is simple: transfer your existing balances to one of more than fifty cards which charge no interest on balance transfers for an introductory period of between five months and a year. On a balance of £3,000, this could save you upwards of £450 over the course of a year; you can learn the tricks of this trade in Beware Of Bad Balance Transfers.

The Credit Card world continues to offer up some great deals, alongside some catches for the unwary of course. Remember the more research you do into a financial product the better you'll understand its advantages and be able to spot any disadvantages.

IVAs, Mortgages and Bankruptcies

What I find odd is how these banks all say they've 'written off' billions in debt. HSBC for instance just recently wrote off x billion of sub-prime mortgage debt or bad debts.

Fact is that I've known several people in mild debt, in fact I've been at the receiving end myself. No one ever gave me or these others a letter saying it had been written off. In fact 'hounded' would be a better description.

I think it means that they've given up collecting the debt, because there is no money to collect. Or, they have settled for a part payment, where it is unrealistic that the debtor would ever be able to repay the whole debt.

In other words, that means bankruptcies or IVAs. In 2006, there were 45000 IVAs and 63000 bankruptcies. In 2005 and 2004 the figures were 21000/48000 and 11000/27000 respectively. This means that over the last 3 years, 215k people have been unable to pay their debts and the debts have been legally cancelled after part or no payment (If all these people had credit card debt, it works out at around £30k each - not a totally implausible amount for someone to hold as a crippling debt).

Essentially, companies will hound you over debts for as long as they think you will be able to pay it. If you have no assets and no way to repay the debt, then a bankruptcy will cancel your debt completely (but with the catch that you will lose every asset that you own - of course, if you own nothing....). If you have a steady income, but no assets - then an alternative to bankruptcy is an IVA - where you agree to repay as much of the loan as you can over, say, 5 years - and avoid the stigma and problems caused by bankruptcy. In practice, this repayment will often only be a fraction of the total debt - but it's better for the creditors than bankruptcy - because if you declare bankruptcy, then the creditors get nothing at all.

I have to confess, I've been somewhat surprised that in recent years bankruptcy and insolvency legislation has been drastically loosened. It used to be the case that bankruptcy would last 3 years - but it now only lasts a few months, or a year at most. And IVAs have become an easy way out for many, avoiding the credit blacklisting that comes from bankruptcy while still allowing you to shirk your responsibilities. The argument for slackening the legislation is that it encourages business ventures - if a business fails, the proprietor can start up with a new venture after only a brief disqualification - the downside is that it encourages fiscal irresponsibility.

'In Britain the banks can hound you for the remain debt until you die'

Well, that's a bit of an exaggeration...

However, the statute of limitations on a mortgage is considerably longer than a normal unsecured loan (12 years, as opposed to 6). So, they've got 12 years to chivvy you into paying up, or force you to declare bankruptcy. Many people with significant negative equity may find bankruptcy a better option, especially with the 'devaluation' of bankruptcy in recent years.

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