Why payday loans can be a huge mistake
Thinking of using student payday loans? You might want to reconsider.
Most students know what it’s like to be strapped for cash; it’s pretty much a standard part of the uni experience. Good bits, bad bits, hungry bits – you take the rough with the smooth. But what is the best way to deal with those all too regular cash flow issues we find ourselves battling?
Let’s face it, tempting payday loan ads are all over daytime TV and it can seem like a great idea at the time if you’re in a sticky financial situ. This can be dangerous though, for loads of reasons: not least, the fact that borrowing a small bit of money can soon lead you into a spiral of debt with borrowings and interest payments piling up insanely fast.
Scarily, research shows that a chunk of students are already resorting to payday lenders – a new study by MoneySuperMarket has discovered that the number of students who’ve used a payday loan has risen by 136% (to more than 25%) in the last decade, and 36% rely a credit card.
If you’re considering taking out one of these loans, make sure to do your research first so you know the facts. Already using payday lenders? Find out what to do if you’re struggling, here.
What are payday loans?
Payday loans are a short-term method of borrowing with the intention, as the name suggests, of keeping you going until payday. They come with shockingly high interest rates, but can sound pretty manageable if you’re paying them off in full when you get more money. Obviously though, you’re then short of money again – so you can see how it could become a nightmare.
The big problem is that payday loans have gone way beyond their intended use. They can now be taken out over longer periods, sometimes up to several months, and can be paid off in instalments – but they still come with eye-watering interest rates. While some lenders provide a bit of flexibility when it comes to repayments, your debt can easily pile up.
Also, when you’re so short of cash that you’re resorting to payday loans, it’s pretty unlikely you’ll be able to keep up with the repayments, leading to more interest and even late fees.
Even worse, your credit rating might suffer, and debt collectors could even visit you if you put off resolving the issue for too long.
You’re not alone
There are a number of reasons that students may find themselves struggling for money during uni, even before they get there and in their first few weeks, whether they’ve overspent during Freshers’, budgeted too generously or missed out on financial education.
We spoke to Margaret who secured a place at University of Bedfordshire to study Biomedical Science. She’d applied for Student Finance before uni but unfortunately didn’t receive her payment on time. Margaret told us:
“I was shocked to be in debt because it wasn’t my fault.
“I knew I had to pay rent, but I didn’t have the resources. I felt pressured and stressed I didn’t know whether my parents would be able to pay. I had to call them and they paid £500 the next day. It was a shock to the system.”
A circumstantial error is one thing, but what if your money was never going to stretch far enough? Panashe was prepared to spend money he had saved on his gap year to make up the difference when his student loan wasn’t enough, but he also found that he was in need of some money-saving tips. He said:
“I needed some help on how to cut costs and not spend on things that I didn’t need.
“Living costs have been quite different to what I expected. I spend about £20 on food a week, but also get some from home whenever I go back. I spend £10 to use the laundry, which I didn’t really think about.”
Already in money trouble? Here’s what to do
Managing your money as a student isn’t always an easy business. We’ve put together a simple report with top tips for running your finances, and we’ve included some easy-to-follow steps here, too.
- Most importantly, try not to panic. It’s understandable to feel a bit overwhelmed when money problems pile up, but staying calm will help you to overcome them.
- Always avoid making decisions in a hurry, as you’ll probably regret them – take a step back and think carefully about what to do next.
- If you do find yourself in difficulties, don’t be afraid to speak up about them and seek help. Of course, this might seem easier said than done – but help is at hand, provided you’re prepared to seek it out.
- If you're having financial problems, you could get in touch with your Students’ Union or charities such as the Citizens Advice Bureau.
- Find out if you can get extra help. Some students, depending on their circumstances, are eligible for various grants and bursaries. The Turn2Us Grants Search makes it easy to find out which, if any, apply to your situation, so it’s well worth taking a look.
- Remember: the sooner you speak up, the sooner you can begin to turn things around. Even if it’s something as simple as working out how to budget for essentials, there are people who’ll be more than happy to guide you.
For more tips on budgeting and saving money, check out our #YouGotThis hub, where you’ll find information from our experts.