Christmas Loans: Buy Now, Pay Later – Guest Post
Christmas is on its way, and getting caught up in the festive spending can be all too easy. According to a recent survey conducted by CNBC, the average amount spent on Christmas gifts in the USA is likely to come in at around $751 per adult this year, up 22% on last year’s spending plans.
Spending for the festive season can provide sharp relief from the economic doom and gloom, but shoppers should be very wary of utilizing instant cash loans such as payday loans to pay for a short term spree.
A payday loan is a short term loan often made for a period of two weeks or until the borrower’s next pay check is due, and will typically come with very high levels of interest. For example, for every $100 dollars you borrow you might be charged an extra $20 on top as an “interest” payment. At the end of the loan period, if you haven’t repaid in full, many payday lenders will simply ‘rollover’ the loan amount into a new “loan” and make that $20 dollar charge again, without your prior permission.
Under those terms, if you were to borrow average Joe’s $750 for just one month to cover the cost of your Christmas gifts, you’d need to pay back $1350 come January. By February you could end up owing $2550 for a $750 loan, that’s over three times the original amount after just 8 weeks of borrowing.
Fortunately, payday loans are illegal in many states of America, but there are still states where payday lending is big business, and lenders sometimes operate outside the law regardless. Payday lenders exploit the attraction of fast cash, which can be especially tempting at this time of year, but the figures alone suggest that borrowers would do well to beware.
If you already have a payday loan, and you’re not sure what the law is in your state, check it out. If you’ve been loaned money by a payday lender who is operating outside of the law it is likely that you are under no obligation to repay it.
Payday lending is also becoming increasingly popular across the Atlantic with a recent survey suggesting that as many as 3.5million people in the UK will consider taking out payday loans across the next six months. As the rules on payday lending become tighter in the USA many lenders are moving to the UK to exploit more lax regulations.
If you’re short for the festive period there are other ways of having a comfortable Christmas without resorting to payday loans. It may be too late to make a long term savings plan for this year, but if you’re feeling the pinch it can be a good idea to think about what you’ll do differently next time around so that you don’t end up in unmanageable debt.
Make a list of what you’d like to spend money on across the Christmas period, and compare it to your disposable income. If the two don’t match up you can adjust and cut back on the less necessary items first. If you need to raise some extra money see if you can make a fast buck by selling unwanted items around your house, or by taking on that extra bit of overtime at work.
If you do need to take out a loan make sure you know what it says in the small print. Before you borrow work out how long it will be before you are able to pay the loan back and exactly how much this will cost based on the APR or rate of interest for a fixed period of time. Shop around to get the best deal on your borrowings and consider if it might be better to seek a loan from a small loans company or a credit union.
Don’t wait until the New Year to face the consequences of Christmas debt, make your resolutions early!
This post was written by John Hughes who is a resident blogger at www.independentfinancialadvisor.co.uk, a UK based site that provides access to financial advisors as well as to debt advice charities for those struggling with their debts.