When should I take out a payday loan?
Payday loans are short term loans which are designed to be paid back on your next payday. Many borrowers take out these loans when unexpected bills arrive and they don’t have access to the funds to be able to make payment. The good thing about payday loans is that they are usually made available straight away and in general, you won’t have to complete any paperwork to receive the funds. However, it is important to give careful consideration to taking out a payday loan or any other type of credit, for that matter. These are some points to think about when deciding on whether to take out a payday loan.
Do you really need it?
The first important point to think about is whether you need the loan. What is the reason for requiring extra funds? If it’s simply to buy yourself something new or to go on holiday, then you might be better off just doing without it, rather than getting yourself into more debt. However, if it’s a necessity, like paying your rent or buying food – then it is definitely worth considering, if you have no other options.
Can you pay it back?
It may seem like you have a long time to pay your loan back, but we all know how quickly time can go by. If you are considering taking out a payday loan, have a good look at your budget first. Can you afford to pay it back at the end of the month? If you can, will you have cash left over for food/rent etc.? You should only ever take out any credit if you can realistically afford to pay it back. If not, it is important to look at other options. Friends and family might be willing to help out and will probably be less strict about repayment.
In order to be eligible for a payday loan, you should have a bank account and be employed. In some cases, you may need to undergo a credit check to get your loan. However, this is less strict than it would be with other financial institutions. You may also need to prove your employment status, so be prepared to have documents ready to send over to the payday lender.
What are the advantages?
We hear a lot in the press about payday loans compared to other forms of credit and how bad they are, but really payday loans are no worse than dipping into an overdraft. If you pay your loan back within the specified period of around 30 days, you won’t incur any further charges. The good thing about payday loans is also that you can get the loan within a matter of hours or days. If you need access to cash urgently, these can offer a lifeline to many. Unexpected emergencies can happen to anyone and most of us are not prepared for these incidents, even if you usually have a lot of spare cash.
What is the next step?
If you decide to go ahead with a payday loan, you would fill out the application which will ask general questions about your background and employment status. You will decide on how much to take out and for how long and this will either be accepted or rejected. You may be offered less than you asked for, but this may increase in the future, if you decide to take out another loan and you paid this one back on time.
How to save yourself from future problems
If you find yourself needing a payday loan – it is not the end of the world, but you should use this as a clear sign that you need to take better care of your finances. Borrowers take out payday loans as a last resort and usually because they don’t have any other available funds, so you need to get better at budgeting if this is the case. A budget is the best and most practical solution to having to take out any kind of credit in the future, including payday loans. If you manage your budget effectively and reduce your wasteful spending, you will be able to save more and cope with unexpected bills or expenses which might arise.