Is a Payday Loan Right for me?
Payday loans are something that most people have now heard of. They are a short term loan, where you borrow a few hundred pounds until you next get paid. They are a way to give you some extra money before you get paid, to cover emergencies like unexpected bills. However, they are one of the most expensive ways to borrow money if you compare the interest rates with other types of lending, although the actual fees and interest will be smaller than many because the term is so small.
Before you take out any loan it is worth considering whether you really need the money. You need to consider if there are any other ways that you can get the money without borrowing. All borrowing has a cost and so if you cannot afford that cost then you should not borrow the money. You should be able to calculate the cost or be told when you enquire about borrowing the money. Consider whether you would still have bought the item if it had cost that much, compared to its actual sale price.
You should also consider the repayment. Will you be able to afford the repayment and will you be able to manage your money for the rest of the month once that repayment has come out. With a payday loan, you repay the whole amount that you borrowed plus the fees in one big chunk and that means that you have to know that you will have that lump sum available and will be able to manage until you are next paid once that chunk goes out.
It is also worth considering your alternatives and seeing whether they are cheaper. For example, if you have any savings then use those as any interest you will lose is very likely to be less than the cost of a payday loan. Do calculate it to check though. If you have an overdraft facility it might be cheaper to use this. Some may be dearer though, particularly if they are unauthorised, so again you will need to check carefully. It may also be cheaper to use a credit card. It is harder to calculate the cost of using a credit card though because you can choose when you repay, so if you pay the interest only for a long time, the costs could really add up, but if you pay back the outstanding balance quickly it may be cheaper. It may even be possible for you to get an advance on your salary or to borrow from friends or family rather than having to pay these high costs.
Remember that when you are comparing costs you should not compare the interest rates as this is not a fair comparison. Calculate the actual cost of the loan in monetary terms and you will be able to see what you will be repaying in costs and that will allow you to know which is the best. Most loans will have fees as well as interest and how much you pay in interest will depend on how long it takes you to repay.
If you do feel that a payday loan is the only option that you have then make sure that you compare all of the different types. You will want to make sure that you get the one that offers the best value for money. Even if you’re desperate for cash now. The cheapest will probably be the best but do look at any charges they have if you do not repay on time and see whether you can find any reviews about how flexible they are and how good their customer service is as these could be really useful to you.
It can be really easy to panic and borrow money quickly, spend it and then regret it. It can be a big struggle to make repayments on any loan and so you should really think hard before you do this. Decide whether you really need the money, whether you can afford the repayments and whether there are any alternatives available for you. If there are no alternatives then it would be wise to compare different payday loans and see which looks to be the best one for you.