Friday, September 14, 2018

Payday Loans - The Good and the Bad

Payday loans are a quick and easy method of getting cash when you need a short-term loan. Once you have one, they are then repaid from your next months' salary (hence 'payday' loans). The sums lent can vary but they are usually for small amounts, from £50 to £1000. They can be used as an easy way to get hold of cash for sudden emergencies and loans can be processed and approved within hours rather than the traditional loan you may get from more established financial providers. They are also available for people who have a 'high risk' financial history that would normally preclude them from getting a loan elsewhere.

They can have drawbacks; one of which is the very high cost of the loans that can be charged with up to 20% a month interest. This is a lot more than you would normally pay but at the same time cheaper than paying bank fees for unauthorized overdrafts. Other cons are fixed repayment dates that may not coincide with your normal working payday, causing costs to be added to the loan.

To apply for payday loans is a very easy process and can be done online or over the phone. Once you have requested an amount, the company will do a quick credit check (some companies actually offer loans without these) with regard to confirming your employment or your benefits either by checking your bank statements or other documents and if successful, your money will be with you in 24hours or even less. Most companies will offer you the option of repaying the loan early but if not, the money will be deducted on or close to your next salaried payday. You are given the option of carrying the loan forward to your next payday but are warned, this can be expensive as fresh charges are applied.

The advantages of payday loans are many and as mentioned before, they are a great way to get very quick access to cash in an emergency. You can manage them online rather than having to visit a branch or bank offices. If you pay them back promptly and on time, they can also be a good way to boost your credit rating if you don't have one already. They can save you from having to borrow from friends and family which can always cause conflict and they save time filling in huge application forms with normal lenders.

As always though, there are disadvantages and as mentioned before, the charges can be high. This is due to the risky nature of the lending and the potential for default meaning the lender passes these costs onto the customer. It can cost around 20% of the loan just to borrow the money and if you miss a payment then these costs can escalate, leaving you in more trouble than before. Bailiff costs are added to the loan if in arrears as well as various 'admin' costs too. These could double the amount you previously owned. Also be aware that some loans may also be secured against assets you own such as a vehicle and even your house. Getting into trouble could see you losing more than just money. Be aware that the market for payday loans online is still at a stage where unregulated and unscrupulous lenders are getting involved. This can mean a dangerous combination of high-interest rates when repaying the loan and some unethical business practices if you go into arrears so be careful who you are dealing with.

Overall, payday loans can be useful but use them sparingly and never let them get out of control. Always look at other options for finance first before applying. You may have other financial avenues that you didn't know about.

The author is available for writing assignments on various aspects of loans and finance. Please leave contact details and proposals in the comment fields. Thanks

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