Payday loans are growing in popularity, but not for a good reason

Payday loans have come back into the Media’s limelight as of late, thanks to some scary lending stories from ordinary New Zealanders. One of these stories was a Stuff article about a man called Blair, who got stuck in a vicious debt cycle and ended up paying $40,000 on a $900 payday loan. That’s a 4,400% increase on the original loan! Payday loans can be a scary practice to deal with as the rules surrounding responsible lending becomes quite blurred.

There are limited credits checks and minimal background searches, meaning there is no protection for irresponsible lenders. The risk of getting stuck in a vicious debt cycle and being forced to take out additional loans, to pay off existing ones is high. So why are so many struggling New Zealanders seeking financial assistance from Payday lenders than the likes of the government agencies?

In a stuff article published 15 October 2018, Jess Berentson-Shaw, said her research showed that people went to loan sharks because service teams there were nicer to them than Work and Income.

This is because of the quickness and ease of applying online with Payday lenders. With some of them, you don’t even need to send through documents or have them check your credit history. You can apply in a couple of minutes and have the money within an hour. Sounds great at first, but just like most things that seem too good to be true, there is a catch. The interest rates, hidden fees and ability to roll over monthly payments with added fees next time, cause lenders to get stuck in vicious debt cycles. We have gone over the dangers of Payday loans in a previous blog, so we recommend checking them out.

We recommend seeking alternative options and not resorting to payday lenders when times get tough. Talk to family members, enquire about government financial assistance or seek help from responsible lending organisations such as credit unions or banks. One of the sole reasons that credit unions were set up in the first place was to stop the unethical practice of “usury” where organisations would charge unreasonably high-interest rates to borrowers due to their financial limitations.

Don’t fall into the trap of getting a payday loan to help you get through to next week’s pay or when times are tough. Do your research and consider other safer options first. Because just like Blair from Auckland, your $900 loan now could snowball into something that is unmanageable to deal with later.

If you are interested in reading more like this, we recommend the following readings: 

Why payday loans are bad

Avoiding the debt cycle

Know your debt