Payday Loans
Payday Loans..... what exactly are they? Are they really bad news?
Well yes and no. Payday loans have been talked about a lot recently in the press, tv and even parliament, and no one is very complimentary. They are portrayed as evil loan shark companies preying on the weak by getting them hooked on expensive credit which they struggle to repay while they get rich fast.
Basically these are last resort loans for people who only need to borrow until their next payday, ie less than 30 days or one month. They are designed to give you quick and easy access to some 'emergency' extra cash for some unforeseen cash flow problem you are experiencing which will be sorted out by you getting your next pay cheque. They provide the function of modern day pawn brokers only you sign a credit agreement rather than hand over Granny's Silver.
Well yes and no. Payday loans have been talked about a lot recently in the press, tv and even parliament, and no one is very complimentary. They are portrayed as evil loan shark companies preying on the weak by getting them hooked on expensive credit which they struggle to repay while they get rich fast.
Basically these are last resort loans for people who only need to borrow until their next payday, ie less than 30 days or one month. They are designed to give you quick and easy access to some 'emergency' extra cash for some unforeseen cash flow problem you are experiencing which will be sorted out by you getting your next pay cheque. They provide the function of modern day pawn brokers only you sign a credit agreement rather than hand over Granny's Silver.
There are lots of potential problems with using payday loans.
Firstly the type of person who finds themself sort of cash mid way through a month and has absolutely no other form of credit, ie no credit card, no overdraft facility and have maxed out all thier money is also quite likely not to be able to re-pay thier payday loan in full within the agreed timescale (normally a maximum of 30 days).
Secondly the costs involved in using a payday loan are high. There will be an arrangement fee, possibly a fund transfer fee to put the cash in your account, and a very high rate of interest (often an APR in excess of 4000%). You will be liable for these costs if you keep yourside of the deal and pay the loan off in full and in the agreed timescale.
Thirdly, if you do not pay off the loan when agreed then you will be hit with very high penalty charges immediately which can very soon can turn a small starting loan into a huge debt burden which you may simply be unable to afford to pay off.
What are the good points of payday loans, if any?
Sometimes some people suddenly have a genuine cash emergency which is unforseen and they need the money within hours and traditional banks have become much more inflexible in recent years in helping out with short term credit. If you know you will pay the loan off in full with your next pay cheque and you fully understand the cost of borrowing the money then on some occasions they can make sense.
Going overdrawn at your bank and using an unauthorised overdraft facility can in fact cost more in the short term than payday loans.
Some Payday lenders have made great effort to make the costs and rules of borrowing with them very clear and some credit is due for this.
I like to think of payday lenders as the Ryanair of banking, there is a definite need for the service they provide, they are upfront about what it costs to use them and if you use them as agreed the service can be very efficient. If you don't, then like Ryanair you can stung with lots of expensive extras you really didn't bargain for!
What are the alternatives to payday loans?
Well I would only ever consider Payday lenders as a very last resort or in an emergency, say if I needed cash out of normal banking hours. Always speak to your bank first if possible and see if your credit line can be extended. Most banks now offer 24Hr banking so you should be able to contact them over the telephone. Try family and friends if you have them and consider asking a credit union which will often help out in times of genuine financial hardship.
Firstly the type of person who finds themself sort of cash mid way through a month and has absolutely no other form of credit, ie no credit card, no overdraft facility and have maxed out all thier money is also quite likely not to be able to re-pay thier payday loan in full within the agreed timescale (normally a maximum of 30 days).
Secondly the costs involved in using a payday loan are high. There will be an arrangement fee, possibly a fund transfer fee to put the cash in your account, and a very high rate of interest (often an APR in excess of 4000%). You will be liable for these costs if you keep yourside of the deal and pay the loan off in full and in the agreed timescale.
Thirdly, if you do not pay off the loan when agreed then you will be hit with very high penalty charges immediately which can very soon can turn a small starting loan into a huge debt burden which you may simply be unable to afford to pay off.
What are the good points of payday loans, if any?
Sometimes some people suddenly have a genuine cash emergency which is unforseen and they need the money within hours and traditional banks have become much more inflexible in recent years in helping out with short term credit. If you know you will pay the loan off in full with your next pay cheque and you fully understand the cost of borrowing the money then on some occasions they can make sense.
Going overdrawn at your bank and using an unauthorised overdraft facility can in fact cost more in the short term than payday loans.
Some Payday lenders have made great effort to make the costs and rules of borrowing with them very clear and some credit is due for this.
I like to think of payday lenders as the Ryanair of banking, there is a definite need for the service they provide, they are upfront about what it costs to use them and if you use them as agreed the service can be very efficient. If you don't, then like Ryanair you can stung with lots of expensive extras you really didn't bargain for!
What are the alternatives to payday loans?
Well I would only ever consider Payday lenders as a very last resort or in an emergency, say if I needed cash out of normal banking hours. Always speak to your bank first if possible and see if your credit line can be extended. Most banks now offer 24Hr banking so you should be able to contact them over the telephone. Try family and friends if you have them and consider asking a credit union which will often help out in times of genuine financial hardship.