With many of us feeling the ‘pinch’, it can sometimes feel like a struggle to make your wages last through to the end of the month. But is taking out a payday loan to tide you over ever worth considering?
What are Payday loans?
A payday loan is a one-off, short term loan designed to keep you financially afloat until you receive your monthly wages. You generally have the option borrow somewhere between £80 and £1,000 and the idea is that you pay off the loan in full when your monthly wages arrive in your bank.
However, this instant-access borrowing doesn’t come cheap and it’s not unusual for payday loan companies to charge rates of interest as high as 2,000% APR.
Although these loans are designed to be short-term, there is an option to roll your debt on from month to month – a very bad idea when considering the amount of interest you will be paying.
Who should consider getting one?
The ‘Credit Crunch’ may now be officially over, but it has left many people still desperate for cash. If you have exhausted every other possible avenue of raising finance or have a few too many black marks on your credit history then – and only then - you may consider the possibility of taking out a payday loan.
Of course there are exceptional circumstances that might push you towards taking out a payday loan, like an unexpected bill. But even in these circumstances try talking to whoever sent you the bill first. If you explain your situation then it may be possible to come to some arrangement with regards to making staggered payments.
How do you get one?
Taking out a Payday loan is quick and easy – which, of course, is part of the attraction. There are no credit checks. You can apply for a payday loan and you can have the money transferred to your bank account in as little as 15 minutes. As long as you are over 18, have a bank account and are employed with a regular month income, then you should be able to apply for a payday loan.
Even though the interest rates on payday loans are astronomical, you should still shop around and try to get the lowest possible APR you can find. To give you an idea, a quick look at our payday loan comparison table soon reveals that the rate of interest charged can vary from anything between 1200% and 2700%. Plumping for the lower APR could mean a significant saving on the amount of interest you pay back.
Some payday loan companies hide their APR rates by quoting your repayments in pounds only. Paying back £125 when you borrow £100 might sound attractive if you are in a tight situation, but lurking behind that £25 charge is an APR of 1737%. You need to pay careful attention to the APR rate. If you fail to pay back your loan with your month’s wages, you will find yourself being charged extra interest for each subsequent month.
Most importantly, just because applying for a payday loan is so quick and easy – it doesn’t mean that you have to rush when it comes to taking one out. Take your time and read all of the small print in the terms & conditions extremely carefully.
How to make it work for you?
If you are willing to take out a payday loan - despite the astronomical interest rates - then the only way you can extricate yourself from an extremely perilous financial situation, is to ensure that you pay back the entire amount that you borrowed when your wages are paid into your bank account.
It is imperative that you only ever borrow what you can actually payback on payday. To do this, only ever borrow the absolute minimum amount you need to tide you over. If you need to borrow £200, then think very hard about whether you can manage equally as well with £100.
Never in any circumstances be tempted to borrow a little bit more because it is being waved in front of your nose. This will only make an already dangerous situation much worse. If you are forced to carry or defer your loan to the following month then your debt will spiral. You could also face the prospect of incurring bank charges if your loan repayments take you beyond your authorised overdraft limit.
What alternatives are there?
If you are even considering a payday loan then it is probably a good indicator that you are already living beyond your means. If that is the case, you should think about contacting your nearest Citizens Advice Bureau first to discuss how you can go about reducing your debts.
Ask yourself if you really need a payday loan. Then go to bed and when you wake up in the morning, ask yourself again: do you really need this loan? There’s a big difference between taking a loan out to prevent your electricity from being cut off or buying food for your children to paying up front for a holiday.
After you’ve asked yourself whether you really need a loan, if the answer is still ‘yes’, then consider asking a parent, partner or friend to loan you money. The old adage about not mixing money and friends might have some truth to it, but so does ‘a friend in need’. Sometimes just discussing the issue with someone close to you may open up a solution that you hadn’t previously considered.
If your credit rating will allow it, there are so many better options out there than payday loans. Whereas we don’t condone running up debt, many of the major credit cards offer 0% against new purchase for a number of months which could potentially help you bridge the gap between paydays. Even personal loans are available from as little as 9% APR - a slightly more manageable figure than 2,000%!
