It’s so easy to get caught on the wrong side of the financial scale. Making a solid attempt to live a frugal lifestyle is certainly conducive to reaching the other side, but let’s face it, it isn’t always that simple. Life has other plans in store for us Kiwi’s and we need to make sure that we can stay in control of our finances at all times.
We all try, some of us harder than others, and while some do great at cutting costs and sticking to a budget, there are many that don’t have the financial sense or skills to do the same. This leaves those open to all kinds of vulnerabilities within the finance sector. Debt creeps up and before you know it a loan is needed to settle amounts that have been troubling you.
Payday loans are the 911 rescue loan for these types of people and scenarios. They’re short-term, unsecured loans that get you out of financial trouble quickly. All they’re intended to do though is help you out until the next payday where you have access to money again. It’s not meant to be anything more. The terms are typically a month or two.
Lenders of this type in New Zealand have varied terms and conditions, but one that they all share is exorbitant interest rates. You can expect to pay around 300% per annum! That’s not a joke, that is a legitimate rate at quite a few lenders. Scary right? All the more reason you need to brush up on your loan knowledge before applying for one. Even better, avoid having to get there in the first place. But, as we know, life happens and we don’t see certain things coming our way, the only thing you can do is be informed.
A few little insider facts on payday loans
An average loan of this type is around $300. The repayment terms are extremely short in comparison to others, at just one month in some cases. That means that an average interest rate sits around $100 in that month. A lender can make seriously decent money from the interest rate charged in that case when you consider that you could lend 12 times in one year. Lending payday loans and charging the rate of interest that they do is not illegal. It feels like it should be at those figures, but they are in fact quite transparent when it comes to their terms because the law requires them to be.
According to payday lenders, they analyse each customer and identify them as either a blue-collar family that simply need access to cash to help them through some tight months where they aren’t meeting their monthly bills; or a white-collar family that earns well, however struggles to save and therefore have high debts as a result of overspending.
The reality of why people approach payday lenders is simple, they are using them as a last resort since all other avenues have shut the door in their faces due to poor credit and high debt.
Payday lenders might come across as though they’re trying to diffuse the situation and help the borrower. But an exorbitant interest rate is probably not the right way to go about helping anyone in financial trouble.
A few tips on how to avoid payday loans as a last resort
- DRAW UP a budget and stick to it. If you don’t know how - seek advice.
- DON’T UNDERESTIMATE saving, it will save you when you need it the most – interest-free!
- AVOID at all costs accruing a poor credit record. You’ll struggle to obtain regular lines of debt as a result, which directly renders you only capable of applying for a payday loan.
- PAY ALL your expenses monthly on the designated date. When possible – pay earlier!
- STRETCH YOUR MONEY the best way you know how. With petrol, food, and entertainment, there are so many ways to avoid frivolous spending and still have all the fun and opportunity as before.
- IF YOU have any debt, try to settle is as soon as possible. Car leases and bonds, or anything that you have purchased that you needed to pay off over a specific period. You are cutting out a lot of interest when you do this.
- MAKE USE of windfall gains for lump sum repayments.
- CONSIDER taking on another job where you can earn some decent money. If you start this little money-making venture on the side, you can make a conscious decision to not spend any of it and rather put it towards the bond as with the other tips on how to do so. Or you can use half towards your debt and half towards a savings account.
- DO your best wherever you can when taking out any loans or finance agreements, to negotiate a lower interest rate than the rate they give you at first. This will help increase the capital repayments.