The risks of payday loans

Payday loans are of convenience when you need money for an emergency but they should be approached with caution as they have the potential to put you deeper into debt.

A majority of people who get into trouble with payday loans do so because they fail to stick to the original arrangement of the loan, there are a number of reasons why this happens, below are some points worth thinking about if you're to avoid the pitfalls of payday loans.

Do you really need it?
Sometimes what seems like a good short term solution costs more than if you'd waited for a while longer; using a payday loan to pay for something that can wait is like paying £100 now while knowing you can get the same item for £80 if you wait a few days.

Before taking out a payday loan, you should evaluate whether the purpose of the loan really is an emergency.

Have you exhausted all other options?
Before applying for a payday loan, it's important to remember that they are among the costliest forms of credit, therefore, it is a good idea to exhaust every other option possible before going for a payday loan. The following are some of the ways you might be able to get credit:

• A loan from friends or family:
  If you can, get a loan from a friend or a family member, this is the one source of credit that beats all the rest; friends rarely ask for interest on a loan, they also will not give you strict deadlines. You do however risk your trust and friendship, therefore it is just as important that you pay them back in a timely manner.
• Overdraft:
  An overdraft is the amount of money your bank will allow you to spend on top of what you have in your account, most UK current accounts have an overdraft facility. If you don't have an overdraft, it is likely because of your circumstances at the time you opened your account, if those circumstances have changed and you now have a regular income, it is worth applying for one now; any interest you get charged is bound to be lower than the interest on a payday loan.
• Cash advance from your employer:
  Some employers will understand that unexpected events can happen and they might already have a program where employees can get an advance on their salary. It won't do you harm to ask the personnel department whether it is possible to get an advance on your salary.

Taking more than you can afford
With short term loans one of the most important things to remember is that you're required to repay all the money you borrowed in one go. With this in mind, you should calculate based on 1 month's income, whether you can afford all your normal expenses and still have enough money left to pay off the loan.

If you borrow more than what you can spare at the end of the month, you risk having to defer the loan; this is even costlier because for each added month the lender will charge you interest.

Stop the spiral
If you have to defer more than once or have multiple payday loans, things are starting to get out of hand. It might be better to consolidate those payday loans with a long term loan; this will allow you to pay smaller, more manageable repayments, which also will cost you less in interest.

You can also negotiate with the payday lender if you're having trouble paying off the loan; you might be able to work out a longer term repayment plan.


Related:
Loans for people with bad credit - Small cash loans
Credit cards for people with bad credit - Prepaid credit cards