Payday loans have gotten a rather bad press in recent years, but the financial product isn’t always the worst option. For those needing to borrow for a short period of time there’s often a lack of other available financial products, and the cost of taking out a payday loan would be substantially less than taking out a personal loan for a longer period or a higher amount than is actually required. Choosing a payday loan provider isn’t just about representative APR. Some lenders force you to borrow for a full 28 days, while others are flexible – this means that you might pay back less with a lender with a higher APR.
Is this type of loan just for those with bad credit?
Payday loans are traditionally thought of as products that only those in desperate circumstances take out. However the reality is quite different. Many borrowers have permanent jobs and simply need money to pay for unexpected expenses such as emergency repairs, while some even use payday loans to fund business borrowing.
Moves by the industry to become less unpopular, and increasing regulation from government, mean that payday loans are no longer associated with the loan sharks that once controlled the industry. Representative APRs are falling, and often today you’ll pay £20 or less for your loan in interest. The flexibility of payday loans is also increasing their audience, with instant access to the exact amount of funds required for the precise number of days at a set rate, making them ideal for those who want an easy to understand form of credit.
Big brand or small player?
While traditional financial institutions have avoided the payday market, several payday firms have built up their own brands and are now household names. Others are brand new in the industry, or are so small that it’s unlikely that you’ve ever heard of them before. Typically it’s best to go with whatever lender offers you the best overall rate for the loan you wish to take out, however if you think you might struggle to repay then choosing a lender based on customer experience is a better option. Big brands are often keen to improve their reputations, so sometimes offer better customer experience – but not always, so check the reviews first.
Is a payday loan long enough?
It’s important to ensure that you will be able to afford to pay back your payday loan in full with interest when repayment is due. Failure to pay back the lender can lead to loans ‘rolling over’ and fines being issued. Both can be incredibly expensive, and therefore it’s vital that you only take out payday loans when you know you’ll be able to repay on time. Consider other forms of borrowing if you need money for a longer period, such as bad credit loans, guarantor loans or credit cards.
Are there alternatives?
Short term credit doesn’t only come from payday loans. Credit unions often offer similarly short loans, although the application process is often more time consuming. Non-loan products such as overdrafts and credit cards can be a cheaper alternative, as can borrowing from friends and family. However the convenience and flexibility of payday loans means they are unlikely to go away, and can be your best option in some circumstances.