Frugal Friday | Payday Loans
There are a lot of people and companies offering to lend money in this recession. There is a feeding frenzy as the sharks feed on the more vulnerable. I find loan sharks and their ilk quite repulsive and now I have to watch their TV adverts every 15 minutes. They are the parasites of capitalism…
I checked out the interest rates offered by one Payday loan company who use their obscene profits to advertise on TV every 15 minutes; they were last night anyway. The interest rate is 4214%. I wish I could get a return on investments like that. It means they invest £10,000 for a year and get back 4.2 million, even with advertising and staff costs (debt collectors) out of that; they still get rich. If you are out spending for Christmas perhaps you need to think before you spend any more. I have just been told that there is a crowd in my local Asda and not one space on the car park. A recent survey revealed many people are considering payday loans or pawn brokers to help them get through to the pay day after Christmas. Will that help or will they need to do it again to get through to the pay day in February? When they have paid that obscene interest they might need more loans, again and again just to put food in mouths and keep a roof over their heads. It should be illegal. It is the rich and the pathetic exploiting the poor and the weak.
You can of course save and then you benefit from earning interest. I get about 6% now with Zopa and I don’t have to rob people who borrow my money. I hope eventually that peer to peer lending will put the businesses that charge extortionate interest rates out of business. We do need more peer to peer lending and credit unions lending money out to people who need smaller amounts to get them through a bad patch though. I would be happy to donate with no return to a local organisation that was trustworthy and helped the most vulnerable.
If you can pay off your debts, even slowly, you then have less money going out in interest payments and more money to pay off debts. You can then build savings and even at 6% savings can grow. £1,000 will grow into £1,338 in just 5 years. That’s better than most banks will pay you. When you have some savings, you can also invest and although it’s risky; fortunes can be made. It appears that many share prices are low at the moment and if you take a big risk, you can lose some money but also gain a lot. I saw a major retailer whose share price was over £2.00 trading for around 10p today. Buy 10,000 shares and if they return to £2.00 after the recession, you make a killing. You could also lose £1,000; but I would rather lose £1,000 than be £1,000 in debt.
Loans sharks in the local community are usually the scum of the earth too, so avoid them at all costs. Even the pawn broker is better than that, but try to be prepared for bad times, when things are not so bad. You should have a credit card for emergencies not everyday spending.
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- How to manage your debts this Christmas (moneyexpert.com)
- Millions ‘will seek payday loans’ (bbc.co.uk)
- Pay Day loans. A trap for the unwary – or an answer to big bank charges? (cleardebt.co.uk)
- If the Government is so worried about debt, why does it allow people to fall into the hands of payday loan sharks? (blogs.telegraph.co.uk)
- David Prosser: People take out costly loans because they are desperate (independent.co.uk)
- Millions set to take out payday loans (mirror.co.uk)
- Q&A: Payday loans (bbc.co.uk)