Payday loans are designed as short term loans that are given at extremely high interest rates. For many, payday loans charge an interest fee that is much higher than other forms of loans. A prime and common example and comparison is; a payday loan of £100 would cost £130 to repay. Whereas, using a credit card and charging £100 would only cost £20 in APR for an entire year. Payday loan companies do not tend to have credit rating restrictions, and actually tend to market themselves to people with all credit types, especially bad credit.
What should be considered before using a payday loan.
Payday loans should be only considered as a last resort for covering a financial gap that is temporary. As illustrated, using a credit card is a more cost effective way to borrow money. When possible a payday loan should be avoided, due to the fact that it can hurt your credit rating, even when paid back on time. In the UK credit companies denote payday loan companies on your report. If you attempt to get a formal loan or have your report pulled by a financial institution, payday loan companies can make a bad impression on lenders.
If you must get a payday loan, keep the following in mind:
If you are unable to get any other sort of loan, or credit card, and a payday loan is your only option, then follow common sense guidelines as given to us by CashCall, leading providers of payday loans for bad credit. Do not renew or rollover the loan as many offer and attempt to persuade you to do. Do not sign up for automatically renewing payments, also called continuous payment authority (CPA). The big danger in signing up for CPA gives them access to take money from your bank account at any time and can be extremely difficult to undo.
How to avoid issues when you do get a payday loan.
If you do get a payday loan be sure to pay it back when it is due, or sooner. Covering a short and temporary gap in your finances is the best way to view a payday loan. Be sure that you can afford to pay it back in full before you even take one out. Many people are lured into renewing their loan on the premise that it is cheaper to just pay the monthly fee and renew the loan, than repaying the whole thing.
The argument payday loan companies make, using the example from before, is that is cheaper to just pay £30 instead of £130. Many people get lured into this notion that it is easier to just pay the fee than the whole thing. The problem is that payday loan companies will keep offering to increase the loan amount. For people who fall into this spiral of payday loans, even just renewing the same small £100 loan each month soon adds up to quite a loss. Within a year, the fees on even that minor an amount reach £360, nearly three times what it would of cost to just repay it to begin with.
