If you're familiar with payday loans, you may know that they can be a fairly risky type of financial solution for urgent and unexpected payments that you may need to make. If you were planning on getting one, it's best that you are completely informed on what they are and what the circumstances surrounding them are.
Avoid Getting Payday Loans When You Have Other Major Expenses
- One of the biggest problems people face with payday loans is not being able to repay them, when the time comes. Ironically, you need to be able to afford to get a loan; it's not just the need that you have to take into consideration, but also whether or not you can repay the amount you take.
- So before you pull the trigger on a loan like this, take a moment to sit down and list all of your upcoming expenses. Can you afford to pay everything and make the repayment on the loan? Will you have enough money left over for other expenses? Will you be in need of another payday loan soon after repaying the first one?
- Remember that you will not repay the same amount you borrow, but a much higher amount, depending on how high the interest rate is. That can severely affect your budget, so plan carefully and if you have any doubt about whether or not you'd be able to repay, avoid getting a payday loan.
Avoid Getting Payday Loans Repeatedly
- And speaking of needing to get another payday loan, that might just be the number 1 risk with quick payday loans – entering a vicious circle. You see, if you cannot actually afford your lifestyle, you are going to get a loan and tell yourself it's a one-time thing. However, when repayment time comes, you are going to realise that you've run out of money again. So you go out and take another payday loan.
- If this happens repeatedly, you become reliant on a payday loan in order to support your everyday expenses, and that is not sustainable. A payday loan is very expensive and the more you borrow, the more you lose to the lending company in exorbitant interest rates.
- If you've noticed that you do not seem to be able to cope with your regular expenses on your current income, then you need a long-term solution, which is either cutting back on your expenses or bringing in additional income. Constant cash advances are not the solution to your financial predicament.
Avoid Getting Payday Loans with Exceptionally High Interest
- payday loans are unsecured loans, which means that you do not need to put up collateral or have a co-signer (guarantor) in order to be given the money. Because the lender doesn't have security should you default on your loan, the interest on the loan is understandably higher. This is true for all unsecured loans, and instant payday loans are known to have very high interest rates.
- Even so, the rates will differ from one company to the other, so if you're going to get payday loans for bad credit, make sure you browse multiple offers and try to get the best deal available. The interest rate can make a massive difference in how much you will be expected to pay in the end, as well as whether or not you will be able to afford the repayment.
- The amount to repay also depends on the loan term. Traditionally, a payday loan is offered until payday, so for one month. However, now there are options for longer-term loans, for up to three months. This enables the borrower to also repay in instalments over the entire loan period, in order to make repayment more affordable. Please be aware, however, that the longer the repayment term, the higher the amount you will need to give back.
Avoid Getting Payday Loans Unless You Have No Other Choice
- As I mentioned, quick payday loans are not designed as a long-term loan, so you should only get one as a last resort, in an emergency when you need money very quickly and there is no other suitable choice. Because of the high interest rate associated with them, low loan amounts, and short repayment terms, a payday loan does not make a good financial solution for major purchases or longer-term loans for any reason.
- If you need money on a non-urgent basis, it is better for you to look for an alternative solution – perhaps a secured loan, or an unsecured loan for a longer period or a lower interest rate, etc.
What Are Some Alternative Financial Solutions to Payday Loans?
In the interest of helping you avoid risks and problems with a payday loan, I am going to present some suitable alternatives.
- Credit card – a credit card comes with its own set of risks, but it has the advantage of being more suitable for everyday expenses, and it comes with a lower interest rate.
- Friends and family – in an emergency, you can always rely on a loved one to help you out of a pinch. The advantage is that you can probably get a longer repayment term.
- Pay advance – this is not technically a loan, because it's still your own income, only it's an advance on it. See if your employer is willing to offer you an advance on your pay as a one-time exception or even regularly.
In conclusion, while a payday loan can be a quick, short-term solution for an urgent situation, they are certainly not the best loan option out there, and there are certain things to avoid if you don't want to get in financial trouble. Use payday loans responsibly and do not rely on them as a long-term financial solution. If you do struggle with repayment of your payday loan or any other issues, please contact Citizens Advice for help.