You’ll need to work THREE FULL 8 hour days just to pay the interest on a £300 Wonga loan that you only took out for 41 days!

May 29th, 2013 - Posted by in Blog

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Some people might say you’re an idiot if you use a dayday loan company. It might sound harsh but millions of people are using Payday loans and the situation is getting worst. Not only do they charge extremely high interest rates but the vast amount of money to be made has and will attract people who will push the rules and regulations to the limit and beyond.

Wonga, the UK market leader, is claimed to be worth over 1 BILLION Dollars!  These company give money out easily to people in need and charge super high interest rates which can results in a debt spiral which can be extremely hard to get out of. A debt spiral is a nasty place to be and can lead to depression or even worst.

Here are some of the horror stories:

Are payday loan companies just legal loan sharks?

Would you ever use a loan shark? No, well why the hell do you use a Payday Loan company? Payday loan companies are just a legal version of loan sharks. Using the wikipedia definition: “A loan shark is a person or body that offers loans at extremely high interest rates”. Considering a good interest rate at a bank is about 2% and a average mortgage is about 4%, how can anyone justify 4214% as an “extremely high interest rate”? That’s the average that Wonga charges per year: 4214%!

Payday loans companies don’t always play nice

  1.  Lending to under 18
  2. Lending to the mentally ill
  3. Taking money out of people’s accounts without permission
  4. Hounding people by text or even visit their homes
  5. Loaning money without paperwork to prove the party can afford it
There is so much money to earned from running a payday loan company that it will attract people who will push the limits and beyond. Law enforcement isn’t able to protect everyone and people need to take personal responsibility and protect themselves.

How much does a Payday Loan really cost?

If you still think that a payday loan is an a good idea lets look at some numbers, based on Wonga’s calculator:
  • Loan = £300
  • Days = 41 days
  • Interest and fees = £129.04
  • Total repayable = 429.04
  • Interest rate = 43%
Now let’s see how many more hours you have to work just pay that off.
  • Minimum wage = £6.19 per hour (over 21 years old)
  • Income tax and national insurance = £0.763 per hour
  • Take home wage per hour = £5.42
  • Hours required to pay off interest only = 23.8 hours within 41 days. Or, put another way, that’s three whole eight hour days you will need to work just to pay the interest off!

You’re already working too much, so when are you going to be able to tack on three extra days of work just for the interest??

You will need to work an extra THREE FULL HOUR DAYS just to pay the interest on a £300 loan!!

What is Payday Loan money is spent on?

In this research, there are details of the types of people who use payday loans and what they spend it on:
The three main groups who use Payday Loans are:
  1. Skinny jeans and smartphones - 25-35 year
  2. Buggies and bigger bills – 35-44 year old families
  3. Burdened baby boomers – 45-55 year old
 Here is the stuff they buy with a payday loan:
  • Car expenses
  • Holidays
  • Last-minute gifts
  • Paying outstanding utility bills
  • Grocery shopping
  • Financial assistance of grown-up children

Step 1 – Do you REALLY, REALLY need to spend that money now?

Looking at the above list of stuff bought with payday loans I would say that it’s either not a necessarily (holidays, last-minute gifts) or you can probably reduce the amount required using some tricks of the trade.

The good news there are lots of ways you can save before you should resort to a loan. Please, please don’t get a paypad loan until you have exhausted these ways to save:

  • Car expensesCheaper car insurance, use less fuel learn hypermiling techniques. And of course you can ditch the car and get a bike, motorbike or even use the bus instead!!
  • Holidays – Never ever take out a loan to go on holiday – just don’t go. Holiday at home, visit friends and family. It’s not that bad, I promise
  • Last-minute gifts – It’s the thought that counts not the money, so think about some free gift ideas.
  • Pay outstanding utility bills – You will be surprised how many you can save on your current bills with a little effort.
  • Grocery shopping – You can save thousands per year on your grocery shopping with a little thought and effort.
  • Financial assistant to grown up kids – Times are hard but not that hard, one of the best things you can teach your kids is money management and how to stand on their own two feet. So sometimes you have to say no, but help them by spending time teaching them how to deal with their financial responsibilities. Our Golden Money Truths is a good place to start.

Step 2 – What’s the alternative to a Payday Loan?

Firstly please take my advice, NEVER, NEVER take out a payday loan. When I was struggling to make payments, payday loans were never an option, and I survived. And you will, too.
If you have challenged yourself with the simply question, “Do I really, really need to spend that money NOW?” and the honest answer is “Yes”. And then you have tried everything to reduce the cost of that item using the guides above. There are a few places you can try and get the money before resorting to payday loans. I would start in this order:
  1. Sell stuff (ebay, to friends, etc) – 0% interest
  2. Work overtime – 0% interest
  3. Get second job (cleaning, bar work, etc) – 0% interest
  4. Parents – 0% interest
  5. Family (brother, sister, etc) – 0% interest
  6. Friends – 0% interest
  7. Pawn broker – it will cost but it’s not interest as such
  8. Credit card – 20% but 0% if you pay back within a month
  9. Bank loan – 5%
  10. Add to mortgage – 2% this would have to be a large amount
All of those look a lot more attractive than 4214% interest.  Times are tough, there’s no question about it. But, living a more savvy lifestyle and saving where you can will help you avoid the pain of taking out a payday loan and prevent loads of financial stress later. Please NEVER take out a payday loan!!

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