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Can you Afford your Payday Loan?

Can you Afford your Payday Loan?

- by Sarah Connelly

Western Circle trades as Cashfloat.co.uk to supply short term loans in the UK. As we know that our product is an expensive option, we have written this article to help you decide if you can afford your payday loan.

Can you afford your payday loan? Find out here.

When to Use a Payday Loan

There are plenty of reasons why you might take out a payday loan. It’s possible that you needed one, to pay bills that were higher than you anticipated. Or, maybe you just overspent and needed a little more cash in your account to deal with debts. But can you afford to take out a payday loan? That’s a question that many people should be asking before they ever consider taking this plunge.

The problem is that few people do. In many cases, this is because it’s so easy to take out the loan. We hardly ever stop and think about what it means. For some companies, you just need to fill out a quick online form. Within a couple of hours, you will have the money you want. There is no one forcing you to read the small print that these days, isn’t even that small. Most reputable lenders go to great lengths to explain the terms and conditions of the loan. Although, there is no doubt some companies are still slipping the terms at the bottom of the page. Regardless, it makes no difference because many people don’t read them and if they do, they don’t understand them. That’s why you need to be careful when taking out a payday loan. You need to make sure that you can afford to pay it back.

Things to Consider When Taking a Payday Loan

The first consideration that you should make when considering a payday loan is whether you’ll have a paycheck for capital. Many people take out these loans when they are experiencing a period of redundancy. Unfortunately, the whole point of a payday loan is that you will have your next paycheck to use as capital and pay it off. Without this, you are almost always guaranteeing that you will need to borrow again. This is not a situation that you want to find yourself in. Therefore, one of the main factors you must consider is whether you will have the money next month to pay the loan back.

You then need to consider the interest rate. If you can not clearly see, or understand the rate of interest on the loan, do not borrow the money. You will have no idea how much you will end up paying back by the time the loan is due. Since 2015, excessive interest rates are not a serious problem, but they do still exist. You may stumble on a loan company, that has the goal of pushing someone into debt where they become dependent on borrowing.

You need to think about the amount that you are borrowing as well. It’s always best to borrow as little as possible because this is going to make it easier to pay back. Therefore, the loan will be  a lot more affordable for you. As well as this, consider the duration of the loan or length of the borrowing term. In other words, when are you expected to pay it back. Typically, payday loans are due the next month, and this is inferred in the name. However, they can be longer and may have a term of up to three months. Remember, the longer the term, the more interest you will be expected to pay.

Other Payday Loan Charges

Be aware that there may be additional fees as well. These usually come into effect after the loan is late and can be quite substantial. They tend to be explained in full if you are borrowing from a website. If you are borrowing from a loan company on the high street, make sure that they explain these additional fees to you. Do not borrow the money unless you understand how much you may have to pay back if the loan is late.

On top of this, there is the cost that payday loan brokers charge. If you take a loan from a secondary seller or broker, they may charge you for their services. However, they may not clearly lay out the cost of their service for you. Instead, it will be hidden. That’s why it’s best not to borrow from a broker unless you can get a direct confirmation that the service is free of charge. It most likely won’t be.

Is There an Alternative to a Payday Loan?

You must also consider whether there might be another solution rather than taking out a payday loan. For instance, you may want to think about using your savings. Particularly, if it’s a debt you need to pay off, and you don’t have a fixed source of income to fall back on. When you use your savings to pay off a bill, you’re essentially borrowing from yourself. However unlike a loan company, you won’t be charging interest on the amount that you borrow. The only issue is that you have no stakes forcing you to pay back the money into your savings.

You should think about whether you need to borrow the money at all. There is a good rule of thumb that if you don’t need to borrow the loan, you can’t afford to take one out. This means if you’re borrowing money to pay for something that you don’t desperately need, you shouldn’t use a payday loan. The classic example of this scenario arrives at Christmas time. Parents often use payday loans or short term loans to get more money that they can use for Christmas presents. They then use their Christmas bonus or the next paycheck to pay off the loan and what they spent it on. It’s understandable to want to give your children everything they ask for at Christmas. However, if you’re relying on a payday loan to do it, your finances will take a hit.

Conclusion

Therefore, there are a few considerations to make when deciding whether you can afford a payday loan. You need to check the interest. Make sure that it’s affordable and if it’s not, don’t borrow. Check other charges as well, particularly for paying the loan back. Debate whether there is another possibility rather than taking out the loan. Then decide whether you need to borrow the money at all. If you ask all of these questions, you will be able to make the right decision and know that you can afford it.

Sarah is an enthusiastic writer, blogger and an eager agent of change. Although she has never been one to voice her opinion publicly, Sarah has dedicated herself to helping Cashfloat spread awareness about common financial issues and the importance of money management. Through her writing, Sarah hopes to empower a positive and lasting change in people. Sarah believes strongly in ethical business management and consumer protection. After completing her degree in Computer Science in one of London’s esteemed universities, Sarah has come to adore the buzzing hub of London city. Still, in her free time, Sarah enjoys reading, researching, watching movies and eating out. After all, #YOLO!
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