Should I Consider a Payday Loan?

You may have heard a lot of negative things about payday loans and this may make you think that you should not take one out. Alternatively, you may feel that they are only for those who need money quickly or that have a poor credit record. However, these are not good reasons for dismissing a loan type. If you need money then it is worth considering all loan types and comparing them so that you can find the one that is the best for you. This means that you should consider each one carefully using the same criteria. There will be some questions that you should ask yourself.

  • How much do I need to borrow? It is important to make sure that you borrow the right amount of money. Obviously, you will need to make sure that you enough for the purpose that you need the money for, but you also do not want too much. It can often be tempting to borrow more than you need because you will have a bit extra to treat yourself. However, you need to remember that you will pay interest on every bit of money that you borrow and so you want to borrow the minimum amount that you need. So, make sure that you are aware of exactly how much you need and borrow as close to that amount as possible.
  • How long do I want a loan for? It is worth asking yourself whether you are prepared to repay a loan over a long time period or whether you would rather have it for very little time. Some people would rather get a loan repaid as quickly as possible so they can relax and not worry about it. Others do not worry about it anyway and are happy to repay the loan over a longer time period so that it is easier to manage. It is worth making sure that you are aware of the costs of delaying the repayment. You need to consider that the longer you have a loan for, the more expensive it is likely to be as you will be paying interest every day that you hold the loan. So even if the interest rate is small and you do not borrow more than necessary, it will still be costing you money.
  • How much can I afford to repay? It is really important to think about how much you can afford to repay. Look at your bank statements and think about your situation and whether you could even cope with making small repayments. It is worth checking back for about six months if you can as looking back at just one or two will not necessarily give a typical picture. It will depend on whether you had any extra expenses such as birthdays to buy for, bill that only come annually and things like that. You need to consider what you might do if you cannot afford the payments. It might be best just to forget the idea of borrowing money, but if you really need it then you will need to come up with a plan to help you manage the repayments. It might be that you will need to reduce your spending on other things by buying cheaper versions of what you already buy or cutting back in some areas. If you already do this then you may need to look into working more hours.

Once you have decided how much you need to borrow, how quickly you wish to repay it and how much you can afford to repay, you can then start to think about which type of loan will suit your needs the best. A payday loan normally has to be repaid in a lump sum with a few weeks of being taken out. This is ideal for someone who does not want a loan to be hanging around for very long. You can normally only borrow up to £1000 which means that is really most suitable for someone that only needs to borrow a relatively small amount. As you do have to repay it all in one go, you need to be sure that that will be something that you will be able to afford. You need to think about how much it will be and whether you will have the money to pay it. Also consider the other things that you have to pay for as well and whether you will be able to afford those as well. If not, then you could find yourself needing to borrow money again and this will be expensive and could lead to a cycle of debt. Therefore, it is important to plan carefully and make sure that you are confident that you will be able to manage the repayment. If you will have to cut back to afford it then make sure you know exactly where you will be cutting back so that you can make sure that you do so.

Should I Worry if Interest Rates rise and I have a Loan?

Many people who have a loan will worry about the threat of rising interest rates. When rates are low, there is a higher chance that they will rise and if they are already high a rise is likely to have more of an impact in monetary terms. It can be a source of worry but there are things that you can do in order to protect yourself against interest rate rises.

Find the best loan prices
It is worth taking a good look at the loans available to see whether you will be able to swap to a cheaper one. Loans are very competitive and you will often find that there is a lender that will be cheaper than the one that you are with. You can use a comparison website to get some ideas about this but remember that not all companies are on these sites, so it may be worth doing some other research yourself as well. You will need to be careful that your loan company does not charge you too much money for you to swap to another lender. Some may have very high charges, some smaller ones and some none at all. Check with the lender and calculate whether it is still worth switching or whether you will be better off staying with them.

Consider fixed rates
If you are switching then look at fixed rate as well as variable rate loans. If you already have a fixed rate, then you will be protected against rate increases anyway. However, if you do not, then you might want to consider switching to one. There is an element of risk as a fixed rate tends to be higher than a variable rate and so only if interest rates go up will you benefit and even then they will have to go up quite a bit. However, you will have the peace of mind of knowing exactly how much you will need to pay for each repayment.

Pay off the loan more quickly
If you pay more off the loan than you have to, then you will be paying less in interest overall and you may be able to get the loan paid off sooner. This will enable you to be paying less interest as there will be less money to be charged interest on. Therefore, if the rates do go up, the amount that you have to pay may not. Obviously, you will again need to check to see whether there is a charge associated with paying back extra money and see whether it will still be a cost-effective thing to do.

Increase your income
If you increase how much you earn then this can help you in two ways. It will mean that you will be able to afford to pay extra off the loan if this is something that you choose to do and it will help you to be able to afford the increase in cost of the interest. Obviously, this is easier said than done, but you might be able to take on some extra hours at work, take on an extra job, find some freelance work, so some tempting or some online work. There are lots of ways that you could try to earn some money and some will not even take you away from your home.

Reduce your spending
If you are struggling to pay your loan or are only just managing to do it, then it could be wise to think about whether you can cut costs elsewhere to free up money so that you are more easily able to do it. This could mean that you compare prices on things that you buy and get cheaper items or that you shop at cheaper shops. You might even want to consider buying less things so that you reduce your spending that way. Trying to find cheaper retailers could also be useful. It can be wise to think about every purchase and ask yourself whether you really need the item of not. Then look at different places that sell it and see where it is cheapest. Also look at different brands and compare those. This can take time but once you get used to doing it you can make significant savings particularly if you do it with everything that you buy.

So, you should not worry about interest rate rises but make sure that you are prepared for them. As you can see there are things that you can do so that they should not be such a big worry for you. Think about which options might be the best ones for you or whether there are other approaches that you might prefer to take. It might be that you want to try out several things and see which works the best for you.