Warning: Late repayments can cause you serious money problems. For help, go to moneyhelper.org.uk. We are a broker not a lender.
Warning: Late repayments can cause you serious money problems. For help, go to moneyhelper.org.uk. We are a broker not a lender.
Nov 13, 2019
Do you have little to no credit to your name? Maybe you are looking to rebuild your credit but need some quick and temporary cash, what do you do? Most would turn to payday loans. What some may not realize about payday loans, also known as short term loans, are not meant to be used for regular income. To best understand payday loans, we share the pros and cons of these often-quick cash solutions.
Pro – Anyone can get a payday loan
In the UK, anyone can get payday loans as long as they have a bank account, regular income and are at least 18 years of age.
Pro – Fast cash
When you need a payday loan, you are mainly in need of fast cash. Most lenders will also be open and available 24/7 – so regardless of when the crisis strikes, when you need some money, there’s a payday loan available.
Pro – There’s no credit check with a payday loan
When you apply for this kind for a short-term loan, they don’t often do a credit check, which means you can repeatedly take on loans from multiple lends. Be careful though, as it can make repayment difficult and lead to a vicious cycle of dependency.
Pro – No collateral required
With secured loans, you are required to put down a down payment of sorts to ensure that if you default or skip out, at least they have some money from you. With payday loans, you don’t need to have any collateral or down payment.
Con – The interest is high
When you take on a short-term loan, the interest on the return can be almost double what you borrow, which makes the interest rates very high. Some lenders can charge practically four times that of the initial amount.
Con – Creates a revolving dependency
With payday loans, if you are good with managing your money and budget, you will only ever need it for those emergencies. If, however, you are not good with your money and struggle with a budget, these short-term loans can suddenly become long term loans and create a vicious cycle, and could eventually result in higher debts.
Con – They are everywhere
Payday loans have been known to target low-income and immigrant families who struggle to make ends meet. With being available everywhere, it can sometimes be hard to avoid and not be tempted to think we need the loan.
Visit a bank or maybe a credit union and you will find alternatives to a short-term loan, but also when you meet with and find alternatives to a short term loan you are taking proactive measures to plan for emergencies down the road. Remember, short-term loans are great for those unexpected, not for the routine.
The next time you are in need of a short-term loan, consider the different loans available. If you are in a bind and need fast cash – remember to treat these loans as short-term loans and not something to depend on.