Payday loans have become a useful and fast financial option for many facing unexpected expenses or a shortage of cash. These short-term, small cash loans offer quick access to funds and are suitable for those with low credit scores. However, just like any short term loan, there is plenty to consider before choosing to get one to resolve your urgent circumstances.
If you’re looking to make an informed choice for your finances, below is some helpful information about payday loans that can help you consider the pros and cons. When used wisely, a payday loan can quickly help you pay an unexpected bill with same day funds, but you shouldn’t rush in before doing a little research first.
Pros of Payday Loans
So, why choose a payday loan? Well, one of the main advantages is giving you quick access to cash during emergencies. If you’ve received an unexpected bill or something has happened that you need funds fast to cover, a payday loan can be applied for in minutes and potentially provide you with funds within hours. The approval process is usually quick and as long as the lender can determine it is sustainable for you, the loan amount can be approved even with a poor credit history.
When compared with other types of loans, such as a personal loan, you can also choose to borrow smaller amounts over a shorter period. This can be ideal when you only need a few hundred pounds to cover the expense. A personal loan typically would be for loans of over £1,000 and would need a minimum repayment term of 12 months. A payday loan can provide 3 to 6 months of repayments, helping you pay off the debt quicker. This flexibility helps payday loans to be a popular option.
Cons of Payday Loans
With all of the benefits of payday loans, there are a few considerations to make about them first. Whilst they are very convenient and fast to apply for, you’ll want to ensure that you are happy with the interest charge on the loan amount. Fortunately, reputable lenders make this easy by having a loan calculator. This enables you to see how much the loan amount and repayment term will cost you in total including interest. You can then adjust the repayments to match your budget.
As you are borrowing for the short term, the cost of doing so will be higher when compared to a personal loan. You would need to ensure you are happy with the interest charge on the amount you need to borrow before going ahead and compare your options with other lenders too. If using a reputable lender, all of the terms will be easy to see and transparent, with no hidden fees added on. Unfortunately, there are still lenders who will try to charge an upfront fee, so avoid these if you find them. If they are Financial Conduct Authority (FCA) authorised, you’ll know that the lender will follow responsible lending guidelines.
What to Consider Before Taking Out a Payday Loan
The best approach before applying is to consider the full picture with payday loans – on the one hand, they offer the cash you need quickly, but you’ll need to weigh this up with the interest charge and the quick turnaround of repayments over a few months.
You’ll need to ensure the loan you want is affordable, as you won’t want to make your financial situation tougher with a loan you’ll struggle to pay. Lenders will run credit and affordability checks as part of an application and will have to decline you if they can’t determine the loan is suitable. This means payday loans are not guaranteed to be approved when you need them. This ensures that they are only approved for those who can sustain the loan repayments and will not get into further financial difficulties.
Before going ahead, it’s essential to assess your financial situation thoroughly. You should already have a good idea of what you can afford to pay each month, but you should ensure all of your essential outgoings can still be maintained alongside it – you do not want to be in a position where the loan causes you to miss rent or mortgage payments, or means you struggle to pay utility bills or buy groceries.
Lastly, taking out a payday loan should be your final option after considering the alternatives. If it is a small amount, see if borrowing from friends or family is possible, or make use of any emergency savings you may have. Both of these options will help you to avoid having to rely on credit. Also, if you have received an unexpected bill, do speak to the company it’s from first – you may be able to negotiate more time to repay or setup a repayment plan with them.
Choose A Payday Loan Wisely
In summary, you’ll want to take a cautious approach to borrowing in the short term with a payday loan. As long as you can justify the reason for doing so and can afford the repayments, they can work for you in an emergency.
Don’t overlook the alternatives available and be sure to check the lender is FCA-approved before applying. Hopefully, you won’t have to deal with any unexpected bills in the near future, but if you do, choose how you resolve them wisely to keep your finances in good shape.
