The Hidden Pitfalls of Payday Loans

The Hidden Pitfalls of Payday Loans

by David Redmond on 15 May, 2012

Running short of money at the end of the month is not uncommon. You may have had an unexpected bill to pay, made an error when budgeting for the month or simply run out of money for no apparent reason.

If you find yourself in a bit of a cash-flow fix and need to get your hands on a relatively small amount of money for a short period, then you may find that a payday loan is the right option for you. It’s a good idea, though, to first check out MoneySupermarket payday loans so you can compare the various providers and the terms that they offer.

Most companies that provide payday loans will lend between £100 and £1,000 for a period of 31 days. Approval is usually instant and funds are issued quickly, arriving on the same day or the next day at the latest.

To be approved for a payday loan you will, though, have to have a bank account with a debit card. You must also have a regular income that is paid into your account. You do not need to be a homeowner and it does not usually matter if you have a poor credit record.

The Hidden Pitfalls
Payday loans are suitable for short-term borrowing only. The annual interest rate payable for these loans can far exceed 1,000%. If you repay within the agreed 31-day time frame, however, then a payday loan can compare favourably with other types of credit.

It is important, therefore, to be certain that you will be able to make repayment in full in the agreed timescale when considering taking out a payday loan. If you are unsure, then you may want to consider alternative ways of borrowing, such as using a credit card or an overdraft facility, for example.

If you have on-going financial problems, then a payday loan is probably not the right product for you. It could even make matters worse because if you do not repay the amount owed within the agreed time scale, the sum that you owe can quickly spiral out of control.

How to Arrange a Payday Loan
If you are sure that you are just suffering from a temporary cash-flow issue and will be able to repay a loan once payday arrives, then it is a good idea to shop around to get the best deal.

Once you have decided on which lender to use, the process is simple. You will need your bank details, employer’s details and national insurance number to hand when you apply. Most companies will allow you to apply online or by telephone and, once the application is approved, the cash will be in your account by the next day at the latest.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.