I'm sure everyone has at least heard of payday loans before, but if not, let's define the term. Payday loans are unsecured loans for relatively small sums of money that one typically gets for one month, or until "payday". Because they are unsecured, they do not require collateral, a guarantor, or a high credit score; however, that does mean they come with a very high interest rate.
Because of this, some people may find that they struggle with repaying payday loans or that they come to rely on them. In order to avoid getting stuck in that situation, read up on the things to avoid with payday loans. For now, we're going to talk about how to pay off payday loans.
What Kind of Payday Loans Are Currently Available on the Market and What Are the Repayment Terms Like?
Despite what the name would suggest, not all payday loans require the borrower to actually pay on the next payday. While that is the traditional type, in recent years, companies have been offering payday loans that have longer repayment terms.
Short-term loans : Short-term loans are the ones offered for the one-month period, or "payday". They are paid off at the end of the term in the full amount, with added interest, of course.
Longer-term loans : The longer-term loans can have repayment periods of up to three months, and they can be paid in several instalments over the course of the loan term.
How Can You Successfully Pay Off Payday Loans?
There is more than one way to be financially responsible, and paying off payday loans can require effort and planning on multiple fronts. You've got to be completely aware of your current financial situation, what you can afford and you can't, how much you need, if you can pay it back, etc.
Don't Get More Than You Need
It is easy to bite off more than you can chew when getting a loan, but applying restraint, common sense and responsibility is very important. However tempting it may be, do not get more money than you strictly need. The reason is that the more you borrow, the more you will have to repay and the more difficult it will be.
It seems like a harmless decision to make because it's easy; you're borrowing money anyway, so is a few hundred quid going to make a difference? Yes, it will, especially when repayment time comes around. And do not fall into the trap of thinking you'll just use what you need and save the rest to use for repayment, because you will probably end up spending all of it.
Make some calculations, see what is the minimum amount that will get you by on an urgent basis, and borrow that. If you need anything extra, try to find an alternative source for a loan, like a family member or put some expenses on a credit card. Since UK payday loans are so expensive to repay, the less there is to repay, the better.
Only Get A Loan If You Can Afford It
Before you even think about applying for instant payday loans, you first need to make sure that you can actually afford it. Yes, you need to be able to afford a loan; repayment time comes quicker than you imagined and if you cannot pay, you will find yourself in trouble.
What you need to do is make a list of expenses and compare it to your income. Does your income cover them all? Do all these expenses need to be made at once, or are they staggered? Can you afford your regular expenses and a loan repayment, on top?
These are all important questions to ask yourself, so do not treat this lightly. Crunch the numbers and make sure that you will not find yourself in financial hardship once the time comes to repay your loan.
Budget For Your Repayment(s)
If you want to be financially responsible and make sure you are able to afford your repayments, it's a good idea to start budgeting for them immediately after you get the loan. Do not let this escape you, because you might reach repayment day and realise that your calculations were incorrect.
To avoid that, implement some simple steps to save money:
- Put some money aside for the repayment every day, or week.
- Every time you want to buy something unnecessary, put that amount aside towards your repayment, instead.
- Budget the absolute minimum possible for everyday expenses and put the rest aside to make sure you have enough money for your loan repayment.
- Hold off on any major bills or expenses that are not urgent in favour of the loan repayment.
Take The High Interest Into Consideration
A mistake many people make when deciding to take a loan – a payday loan or a different kind – is that they fail to take into consideration the real amount they will need to pay in the end. Remember that the interest rate is very high for payday loans for bad credit, so the amount you need to pay off is quite a bit higher than the one you borrow.
In addition, you also need to take into consideration any extra fees you may incur at the bank for transfers, application fees, early repayment fees, etc. As long as you are fully aware of every possible penny you could need to pay, you will not be unprepared.
In conclusion, while a payday loan is an expensive financial solution, it can help you in a difficult situation. The problems start when repayment time comes, and you struggle to pay off the loan.
However, with a bit of research and planning and complete knowledge of the terms and conditions of the loan, anyone can successfully pay off their payday loan without falling into the trap of taking consequent payday loans every month in order to be able to support themselves. If you find yourself in need of help with debt, the Debt Advice Foundation is at your service with free advice.