Advantages and disadvantages of payday loans

Advantages of a payday loan

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.

Payday loan disadvantages

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.

Alternatives to a payday loan

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:

Using savings

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.

Installment 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.