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Payday loans can feel like a necessary choice for those struggling to make ends meet before their wages land in their bank account. These high-interest loans allow individuals to tackle expenses and get back on track before they have to then pay them back in around a month’s time.
In this post, we’ve considered the pros and cons of payday loans, what to think about before applying for one and whether there are other options that could work for you.
If you need cash fast, a payday loan may be able to help. Here we’ve listed some of the advantages.
1. Payday loans are easy to apply for
While you’re not guaranteed to be accepted for this type of loan, they are easier to access. You can simply apply for a payday loan online and if approved, receive the money that very same day.
2. You can access small amounts of money and pay this back quickly
Payday loans are typically offered in amounts from £50 to £1,000. These small amounts can be suitable for tackling an emergency cost, such as a car repair or purchasing a new home appliance if yours breaks down.
3. You can borrow money just to cover you until payday
This is ideal if you are dealing with a small emergency that requires payment. The idea of a payday loan is that the money tides you over until your wages arrive in your bank account. This means the loan is typically smaller and you pay it back quicker.
4. The loan can be paid directly into your bank account
There’s no waiting around, if you’re approved the payday lender will transfer the loan directly into your bank account. You can then access this and use it as necessary, either transferring the money yourself, paying via card or taking the cash out at an ATM to use.
5. You can take on more than one payday loan at once
This of course depends on the lender you choose and while we don’t recommend you have more than one payday loan at a time, it is possible if you deem it necessary for your circumstances.
It’s important that as well as the advantages of a payday loan you also weigh up the disadvantages before making any decisions. We’ve featured some examples below.
1. You have a very small window of time to pay back your loan
This can put a strain on your finances, as you must find the money you’ve borrowed plus interest and pay this back within a month or up to three months. If you were already struggling financially, a payday loan may not help your situation.
2. These loans come with very high interest rates
This means the loan is likely to cost more than you perhaps realised and means that emergency expense becomes a very expensive one.
3. You may have fees to contend with
If you struggle to pay back your loan and it rolls into the next month, there may be additional charges to deal with and more interest, leading to a cycle of debt that is hard to get out of.
4. You have very little time to plan your budget around a payday loan
This is especially true if you are taking one out in an emergency. This can then have a knock on effect on your financial situation.
5. They may impact your chances of being accepted for other credit products in the future
Some mortgage providers won’t accept people who have had a payday loan or multiple payday loans over a certain period of time. This may seem unfair but it’s something to be aware of before applying if you intend on buying a house in the future.
6. Payday loans are only suitable for short-term issues and goals
This means, if you’re dealing with a larger expense or financial situation you may need to consider something else.
It’s always a good idea to consider a payday loan to be the very last resort, after you’ve exhausted all other options. These include:
Look at your savings account and consider using this first to cover that emergency expense. It’s best to do this, rather than take on a loan and deal with interest.
Ask for help from family and friends
Your parents, your sibling or your best friend may be able to cover the cost of your emergency expense before payday, again avoiding interest and you can pay them back once your wages come in.
0% interest credit card
If you can obtain a credit card that offers no interest for up to a year, this is a good option. It allows you to cover the cost, then pay back what you owe each month with no added cost. However, it’s very important you make your minimum monthly payment on time in full and clear the debt before the interest lands to ensure you don’t lose money.
Sell something of high value
We know that if the clock is ticking and you need to pay for an expense now this may not be the best option but it’s there if you have a little time. The second car that’s rarely driven, the games console or a smartphone can all get you some quick cash that can be used instead of a payday loan.
A short-term loan that can be paid back in installments is another possibility. Our broker partner’s panel of lenders offers short-term loans that you can pay back over a period of 3 to 36 months, depending on how much you borrow. This means no scrambling to get the funds together within a month, just one regular payment to deal with over an agreed period of time.
Representative Example: Borrowing: £1000 for 18 months, Total Repayable: £1853.43, Total Interest: £853.43, Interest Rate (Variable): 89.9%. Rates between 9.3% APR and 1721% APR – your no-obligation quote and APR will be based on your personal circumstances. Loan term lengths from 3 to 36 months. Subject to lender’s requirements and approval.
Sunny Loans is a registered trading name of Upward Finance Limited, who is an introducer appointed representative of Flux Funding Limited, who is a credit broker, not a lender. Loan repayment terms are 3-36 month loans.
Warning: Late repayment can cause you serious money problems. For help, go to www.moneyhelper.org.uk.
Ensure that you have thought about other ways of obtaining the money you need before committing to a payday loan.
Work out how much you’ll need to pay and ensure this can comfortably feature in your next monthly budget to avoid the loan putting a strain on your finances.
Your credit score makes a difference when it comes to whether you’ll be accepted for a loan or not. Check yours and if it’s particularly low, consider finding an alternative to a payday loan.
Check that the lender you’re considering is regulated by the FCA before you apply, this ensures you’re covered should anything go wrong and that you’re applying for a loan with a responsible lender.
Representative 89% APR