A payday loan will not be right for everyone at all times. There may be times when you could borrow some extra cash from friends or family so as not to have to pay an interest fee, or times when you may need a larger, longer term loan or other solution to your credit problem.
Just as you would not always use a taxi whenever you need transport (for example if you had to travel from one side of the country to the other), but it could be your best option at times, payday loans may at times be a good option for you.
Payday loans, also know as payday advances, or cash advance loans, offer a means of gaining access to some extra cash fast. This could be ideal if you have an unexpected expense that needs paying and payday is too far away, or if you want to avoid going into unauthorised overdraft and don’t have enough money in your account to cover cheques and /or direct debit payments.
You need to be sure that you are not getting a payday loan for the wrong reason. It is not a solution for long-term credit or debt problems. It’s a quick fix in a situation when payday is too far off and you need a cash advance to tide you over until your wages come in.
These days payday loans can offer a very quick fix because you can simply apply online, without having to fax documents, get an instant online approval decision, and receive the money you need in your bank account that same day.
This service comes at a premium – but that premium may be worth paying for in certain situations when you need/want a cash loan fast.
Payday loans companies generally charge around 25% of the money they lend you in interest. (Although, if you are going to take out a payday loan, you should look around as some companies charge more than 25%.) For those payday loans providers that charge 25% interest, you would need to pay £20 interest for every £80 borrowed. The APR rate here would be in the 1,000s (typically around 1286.1% for a loan due for repayment 31 days away). However, APR is not necessarily the best way to asses the cost of credit for a payday loan, which is designed to paid off within a month. APR (Annual Payment Rate) shows the cost of borrowing money over the period of a year. It offers a standard means of comparing payment rates. However, payday loans are different from other loan offerings, primarily in that they are designed for much shorter payment terms, which inflate the payment rate when it’s worked out over the period of a year. It is no secret that payday loans charge high interest rates in comparison to larger and longer term loans. However, you may not always want to take out a larger loan. You may just need a relatively small amount of cash right away, and for a short time.
A payday advance is also generally a cheaper option than having to pay bank changes for having insufficient funds when direct debits are tried and when payments and spending go into unauthorised overdraft. Many banks charge around £35 for each direct debit or standing order payment that is tried with insufficient funds in an account and for every attempted cheque cashing.
However, if you are not going to be able to afford to pay back the cash advance loan on your payday or the following payday, then this may not be your best credit option. While most payday loan companies allow you to extend your payday loan to a subsequent payday, by paying the interest fee each month, this increases the amount you are paying for your credit and is, therefore, not generally advisable.
You need to be an informed consumer that weighs up all of the different options available to you in order to be able to choose the best solution for your need for credit.
Remember that a payday advance loan offers a solution to a short-term credit problem and use it accordingly, if it your best option in this situation and you are happy to pay the associated costs.