Payday loans are becoming an increasingly controversial issue in the press, with horror stories for £100 loans turning into thousands. But should they ever be considered over ‘normal’ loans?
People are becoming increasingly short of cash, and living beyond their means, occasionally forcing them to turn to payday loan companies.
Why Do People Take Out Payday Loans?
Companies make getting a payday loan incredibly easy, often with no credit checks and the money can be in your account within a matter of minutes. Very tempting for someone struggling to make ends meet.
For others, where they would have made cutbacks and simply have made do, they take payday loans to maintain their spending lifestyle.
What is a Payday Loan?
Payday loans are short-term loans, offered for an average of 2 weeks to a month to see people through a particularly financially strained month. With most companies just requiring details of your bank account, it is quick and easy to maintain.
Of course there has to be drawbacks, with high interest rates on your loan and even higher rates if you fail to make your payments. An interest rate of 25% can soon shoot up to 2000% once you miss your payment date.
When Should I Consider a Payday Loan?
In all honesty, the answer to this should be never. However, for some a payday loan may be their only available option.
For those people you should ensure you DEFINITELY can make your repayment date for the full amount plus the interest accrued. If you think there is the slightest possibility you won’t make the repayment come payday, don’t touch a payday loan. Soon your small loan can spiral into unmanageable debt.
If you are 100% sure you can and will make repayment dates and you have considered ever other option, there are several steps you must take.
The first is to identify how little you can get away with borrowing. The more you borrow the harder it will be to repay the loan come payday.
The second step you should take is to use a comparison site, like moneysupermarket, to compare the best deals out there on payday loans. Check all the small print and ensure that there are no hidden catches. Also check all the rates so you know exactly what you have to repay.
Finally set reminders in your phone, on every calendar in the house, even post-it note your mirrors with the amount and payment date. A forgotten payment date can cost you far more than you can afford.