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How do I know if a payday loan is my best option?
Payday loans can give you enough funds to last until you receive your next pay cheque, however this solution can come at a high cost. This article examines whether it's a viable option, and if so, help you find the payday loans with the best rates, making borrowing as inexpensive as possible.
What exactly does the term payday loan mean?
Payday loans are simply put loans taken out over a short period of time, so-named because they are intended to give you a small amount of funds to last until you are next paid. Under normal circumstances you'll be able to borrow the equivalent of what you normally earn from your wages, For instance if you earn $1,000 on a monthly basis you will normally be bale to borrow up to $1,000. The loans intention is to supply you with enough cash to last until your payday arrives, at which point the loan must be repaid.
The vast popularity of payday loans is mostly due to the fact that most loan providers will approve the loan without requiring you to have good credit, an additional appeal of payday loans is that once approved finds can usually be in your account by the end of the day. With some lender depositing funds within the hour; making the whole process fast and easy. Generally to be approved for a payday loan you need to be over 18 and to have a regular monthly employer's payment deposited into your account.
With there quick and simple applications payday loans can be very tempting for those who require funds to get them through the rest of the month, however it is important to remember that payday loans are not long term financial solutions. There are many negative implications if the funds are not repaid, which can include long term damage to your credit rating which could restrict future attempts to borrow money.
What's the truth about payday loans?
Payday loans appeal is that they sound simple and relatively harmless, however there are a number of significant things you'll need to be aware of if you are contemplating applying for one.
Firstly, the rate of interest applied to your payday loan will be much higher compared to other methods of borrowing, For instance for every $1000 you borrow you're likely to be charged around $250, which equates to over 1,000% APR. Even the most uncompetitive credit cards charge nothing that exceeds 30% APR, while a competitive personal loan is likely to charge you around 10% APR, however both of these alternative have much more stringent application criteria, which if you have a poor credit history may be difficult for you to meet.
The second most important thing to remember when taking out a payday loan is how easy it is to extend your borrowing over from one month to the next, when payday arrives you may not have sufficient funds to cover the repayment in its entirety, in which case it's easy to simply roll your loan over to the next month. However this means by next payday the amount owed on your initial £1,000 borrowing will be significantly higher, and the amount repayable can quickly spiral, doing this increases the amount repayable considerably and should only be done as a last resort.
Are there any alternatives?
First of all if you have serious cash flow problems or are finding it difficult to make your money last from one month to the next, it may be worth getting in touch with people who can help –by offering comprehensive advice on how to resolve your money problems.
If your borrowing need are as simple as needing to borrow a little extra money you can do so at a competitive price, one option is to by use a 0% balance transfer or purchases credit card, or by getting a personal loan which could have considerably lower rates than payday loans, however it is important to remember that with all borrowing the funds must be repaid and normally the faster you repay the funds the less it costs you.
Is it ever worth taking out a payday loan?
In some circumstances payday loans are unlikely to provide an effective solution to your financial troubles, and should be researched properly before application, It is crucial to weigh up the pro's and con's for your individual circumstances and decide whether your need to borrows justifies the high interest rates you could end up paying.
However, there are of course situations where all other options have been exhausted and a payday loan is your only alternative. In these circumstances it is importantto make sure you are at least getting the best deal you can on your payday loan, this can be achieved by shopping around and finding the lowest APR possible.
The most important thing to bear in mind when applying for a payday loan is to only borrow an amount that you will be able to repay once you have received your next wage packet. Speed is of the essence with payday loans and the borrowed amount should be repaid as soon as possible, this will help you avoid expensive charges for extending the loan, additionally payday loans should not become a regular source of finance, and if you are experiencing serious financial difficulties it is always advisable to contact your bank.
Payday loans can prove to be a quick and simple way of borrowing relatively small amounts of money over a short period of time, if you manage your money effectively and repay the amount in full by the date agreed with your loan provider there is no reason they cannot be considered as a viable short-term finance option.
Please Note: www.whichwaytopay.ca is not authorised to give advice under provincial and federal regulations.
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