What is a payday loan??
A payday loan is a short term loan with a high interest rate. This loan is used for small purchases until your next pay day. Usually you could borrow anything between £50.00 to £1,000.00 to tie you over until your next pay check. Payday loans are known to not have any interest rate caps, so the APR will be very high. They are known to be as high as 4,500% and could be even higher.
If you find yourself in a financial pickle you may consider taking out one of these loans. You may be asking yourself, are they a good idea? The answer to this is that it all depends on the individual, are you in a situation to repay the loan back in full? Like any loan there are advantages and disadvantages.
If you are considering taking out a loan here are some of the advantages and disadvantages of this type of credit and maybe help you figure out if this is a good idea for you or not.
The advantages of a payday loan would be that you don’t need to have brilliant credit history to qualify, secondly you don’t need to secure anything, you just need to show that you have steady job with regular income and you will need to show that you have been with the same company for a minimum of 6 months.
The disadvantages of a payday loan are that loan debts are caused by the high interest rates. If you do fail to repay your loan you’ll owe the outstanding balance of the loan plus the interest and any of the fees or charges from the lender. Avoid having your loan rolled over into the next month as the debt will grow and it will attract more interest. By allowing this you will allow the debt to grow and you will attract added interest until you have cleared the loan. Before you know it you could be paying back more than double what you originally asked to borrow.
And lastly ask yourself, do I really need the loan? Where the APR is high on most short term loans you should never use one for larger expenses whether it be a vacation, Christmas or home improvements. Ask yourself, can I save for this event over a few months? How about starting by creating a budget.
I would Strongly advise to stay away from short term loans if you are struggling with debt problems as they can make your financial situation worse.