5 top tips for effectively managing your payday loan
Payday loans are short term loans, designed to be paid back on your next pay day. These are primarily for people who have an emergency, such as urgent car repairs, home repairs or important bills which need taken care of, and don’t have enough funds available. Borrowers apply to the payday lending company and if they meet the criteria and pass the credit score, they are credited with the funds into their bank account.
Quite often, this happens within 24 hours and borrowers make the decision on how much they want and how long for, but the payday lending company will ultimately decide on the maximum amount. Borrowers are able to take out further loans if they pay it back on time and there is also the option to extend the loan payments.
Benefits of payday loans
Although payday loans have higher interest rates than banks and other financial institutions, there are many benefits in using this kind of finance option. The criteria for payday loans is usually a bit more lenient than banks or credit cards, so borrowers who have a lower than perfect credit score may also be eligible to receive these funds. Another benefit is that you can gain access to the funds quickly, which is ideal for emergencies that we all have at some stage or another! However, although there are benefits, it is important to manage your payday loan so you don’t negatively affect your credit score. These are some of the ways to ensure you take care of your payday loan effectively.
Do you really need it?
Short term loans have higher interest rates, so it is important to take the time to decide whether you really need the loan. Could friends or family help you out? Do you have any savings you might be able to use? Is there any way you could pay the bill later? Make sure you are clear that there are no other options before you apply for the payday loan.
Determine your budget
When making your application for your payday loan, you will be asked how much you would like to borrow. Although it may be tempting to take out a £3,000 loan to pay for a nice holiday and shopping spree, it is not advisable. You should only borrow the amount you need and can afford to pay back on the due date. It is worthwhile taking a bit of time to determine your budget and how much you can realistically afford to take out.
Can you pay it back at end of the month?
Although these short term loans are designed to be paid back at the next pay date, there is usually an option to decide on the duration of the loan. You should consider whether you will be able to pay it back on your next pay day or if you have too many outgoings at that time and need a longer period. It is important to be honest and realistic with yourself about your budget, as this will make it easier to manage.
Budget throughout the month
The loan repayment will be an extra burden on your finances, so it is advisable to try and be careful during the month so you can afford to pay it back and don’t leave yourself short of money. There are always ways to take better care of your finances. For example, spending less on treats throughout the month or taking public transport instead of spending money on fuel. In doing this, it will make it easier to make your repayment, while still ensuring you have enough cash to get through the month.
Always be upfront
If something unexpected happens and you can’t afford to pay back your loan on time, get in touch with your lender and explain the situation – they may be willing to extend the loan for you. Many borrowers bury their heads in the sand, or worse still, take out another payday loan from another company. You will find that your lender will be sympathetic to your situation and will usually be willing to accommodate you. It is important to get in touch so your credit rating is not affected. You should get in touch as early as possible before the repayment date.