You may have heard of payday loans before – or perhaps you've even used when in a time of need. These cash advances have proven to be very popular among certain subsets of people who find themselves struggling to meet the end of the month with money still in their pocket, so sometimes, they need a little help. However, instant payday loans are not a blanket solution to any financial problem one may have. Do you want to know when to go for a payday loan? Keep reading to find out.
What Are Payday Loans?
- A payday loan is an unsecured loan that is given out for a short term, usually for a month, or until "payday", as the name says. The money can be received in cash or in a bank account, and it must be repaid by the end of the loan term.
- What you also need to know about payday loans is that they are quite expensive, with a very high interest rate, which makes them an unsuitable option for repeated lending. The reason for the loan should be worth the amount you pay in interest and should hopefully be a rare, or one-time thing. Getting payday loans repeatedly is unsustainable.
Can You Use Payday Loans Long-Term?
- As mentioned, quick payday loans are not recommended for long-term use, for a few reasons. The first is that they are very expensive, so getting one is almost not worth the expense. If you do it repeatedly, you might come to the realisation that you might as well be saving the money you are spending borrowing money for your next emergency.
- Second, when you get payday loans repeatedly, you run the risk of relying on them financially. Let's say you got paid two weeks ago, but you've run out of money, so you get a payday loan. You get through the month, but then at the beginning of the next month, when you get paid, you need to pay off the loan you took at the beginning. That may leave you with no money, which means you will have to take another payday loan.
- You can see how that can quickly devolve into a vicious circle where you can never become financially independent again because you constantly rely on a payday loan. That can have long-lasting and overarching ramifications on your ability to manage your finances, so be careful.
When to Go for Payday Loans
As you may have been able to infer, a payday loan is not meant for just any kind of use; it is not suited for long-term borrowing, or for major expenses and it is limited to certain circumstances. Not only by design, but if you want to borrow money responsibly and make sure that you do not risk digging yourself into a financial hole that you cannot climb out of.
1. When you're employed
If you're looking to get payday loans, make sure that you are employed or that you otherwise have a source of income so that you can afford to cover the payment of the loan when "payday" comes.
There is nothing worse than getting a loan that you cannot afford to repay because that leaves you scrambling for another fast, short-term loan in order to repay the first one. This can turn into an unfortunate situation.
1. When you only need a small amount
As you may know, a payday loan does not offer large sums of money, because it is unsecured and given out for short terms. The typical payday loan offers between £100 and £1000. So, you cannot rely on the best payday loans to pay major expenses, but you can get a loan like this if you're interested in paying off a bill, making an urgent purchase, paying off small debt, etc. Especially considering the high interest rate, an amount however small can become large.
1. When you've got no other major expenses in that period
Please be aware of your other expenses and financial obligations, when considering getting payday loans. Before applying for one, sit down and think about what other expenses you have during that period and whether you can afford to repay the loan (with interest!), as well as all the other payments you may owe. Acting responsibly can save you a lot of headaches.
1. In an emergency
The most practical and obvious use for a payday loan is an emergency. Let's say you've got an unexpected payment you have to make, like a car repair or a medical bill that you hadn't foreseen. Or perhaps you need to travel urgently or have some legal fees you need to take care of. Payday loans can take care of all of that on short notice so that you can get your money and go about your business without worrying.
However, because of the very high interest fees associated with these loans, it is best if you reserve this option only for financial emergencies, that should not come up that often. Otherwise, you risk falling into the trap of becoming reliant on them, that we discussed earlier.
If you feel like you're still not completely informed on payday loans and when you should get one, consider reading about payday loans & cash advances FAQs. Alternatively, the Money Advice Service can provide you with all the information you need about payday loans, what they are, who can get them, how to repay them, whether or not they're a good idea, etc.
All in all, payday loans can act as an excellent solution if you're in a situation where you need money on short notice. An emergency that calls for some financial help can be resolved with a payday loan, but it is by no means meant to be a permanent, or long-term solution.
Take your financial situation into consideration at all times and exercise caution and responsibility when dealing with a payday loan. Because of the very high interest rates and somewhat addictive quality, they may just trap you into a vicious financial circle.