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 pay day loans ever worth considering?
What are Payday loans?
A payday loan is a one-off, short term loan designed to keep your finances afloat until you receive your monthly wages. You generally have the option borrow between £80 and £1,000 and the idea is that you pay off the loan in full as soon as your monthly wages arrive in your bank.
However this instant-access borrowing doesn’t come cheap, and many payday loans UK companies have been known to charge rates of interest as high as 2,000% APR, sometimes even higher.
Although payday loan lenders design their packages to be short-term, there is an option to roll your debt on from month to month – a very bad idea 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 – should you consider the possibility of taking out a payday loan.
There are exceptional circumstances that might push you towards taking out a pay day loan, such as an unexpected bill. However always 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 same day loans is quick and easy – which, of course, is part of their attraction. They are more lenient with borrowing history meaning bad credit won't necessarily affect your application. You can apply for payday loans online and 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 from a wide selection of payday loan lenders.
Even though the interest rates on pay day 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 shows rates of interest varying by 1,000s%. 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 short term loans is so quick and easy, it doesn’t mean that you have to rush into it when it comes to taking one out. Take your time and read all of the small print in the terms & conditions extremely carefully. Compare payday loan companies, and compare their criteria – and most importantly compare APRs.
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 as soon as you are paid your wages.
It is vital that you only ever borrow what you can actually repay from your next pay packet. To do this, only ever borrow the absolute minimum amount you need. If you need to borrow £200, then think very hard about whether you can manage with £100.
Never in any circumstances be tempted to borrow a little bit more because it is being waved in front of your nose by payday loan lenders. This will only make an already dangerous situation much worse. If you are forced to carry over or defer your loan to the following month then your debt will grow – quickly. You could also incur bank charges if your loan repayments take you beyond your authorised overdraft limit.
What alternatives are there?
If you are even considering pay day loans 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, not brokers or payday loan lenders, to discuss how you can go about reducing your debts. There are also a number of debt repayment charities throughout the country that were set up to provide support and help to people in these exact circumstances.
Ask yourself if you really do need a payday loan. Then go to bed and when you wake up in the morning, ask yourself again: do you need this loan? There’s a world of difference from taking a loan out to buy food for your children, and paying up front for a holiday.
If the answer is still ‘yes’, consider asking a parent, partner or friend to loan you the 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 same day loans. Whereas we don’t condone running up debt, many of the major credit cards offer 0% against new purchases 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%!
Other useful resources for payday loan lenders: