Are Payday Loans Worth Taking Out?
Payday loans are marketed as the very best and perhaps the only way of getting hold of small sums of cash to tide you over until your next payday comes around, though are accused of being rather too expensive. So, the time has come to look at a genuine example of a payday loan and decide whether or not they really are able to fill a rather large gap in the market.
What are Payday Loans?
Payday loans are sometimes referred to as cash advances, which gives a good idea as to how they differ from standard personal loans. In short, the sums of cash on offer are very small and are designed to help any average consumer or household make ends meet in the absence of an imminent payday. Generally speaking, the lender will allow the borrower to take out a loan for any sum up to a maximum of £1,000, or lower if their monthly wage comes in below this sum.
One of the biggest reasons why payday loans have become so popular over recent years is the fact that their application criteria is far more relaxed than that of standard loans and credit cards. In most instance, poor credit is not an issue and CCJs might not be taken into the equation, which means that cash within the hour is well and truly within the reach of most.
In fact, pretty much anybody over 18 years of age and with regular employment is guaranteed to be accepted.
So, payday loans are incredibly simple to get hold of and quite readily available to anyone looking for a little help making ends meet – so what exactly is all the fuss about?
What’s the Fuss?
Payday loans are as simple and straightforward as anyone could ever really hope for, but this doesn’t mean that they should ever be approached or applied for without extensive thought and care. Quite the opposite in fact as with a careless attitude or less than honorable intentions, you might just find yourself up to your neck in the proverbial in no time.
First and foremost comes the APR, which is the biggest sticking point of all for the critics. An APR of 1,000% or higher might seem ridiculous, but what has to be remembered is the fact that a payday loan is repaid over a few weeks at the most – nothing close to a full year. As such, to use an annual interest rate is really of little to no merit, especially given that most lenders will never charge more than £25 for every £100 borrowed.
That being said, fail to repay and allow the term to run longer than its intended course and the results could be truly hideous.
This is where much of the criticism lies as with payday loans it is of course all-too easy to assume that rolling the loan over for a month or two cannot cause much harm, when in fact the opposite is true. By adding on these 25% charges each month and the probable late-payment fees applied by the lender, even a couple of months here and there can begin a steady spiral into debt from which there is no going back.
What’s more, other critics argue that if a borrower needs to take out a payday loan online, this is a sign that they have in all probability already been less than careful with their available finances and are therefore asking for trouble. Given the way in which payday loans are less than forgiving at the best of times, they are certainly not for those who do not already have a good grip on their finances.
Payday Loan Alternatives
Another argument is that payday loans are unnecessary as the alternative options are far better, which include the likes of contacting the Citizens Advice Bureau to bring to light a world of options for those struggling to make ends meet.
Others argue that the use of a standard credit card or a loan is a far better solution for short term spending needs, given that both will offer far lower rates of interest and greater flexibility. On the downside, both can also take weeks to apply for and receive and are therefore of little use when time is a factor.
An arranged overdraft is a good option for affordable cash in a crisis, though again is imperfect given the way in which credit ratings and the like will usually be brought into the equation.
…and the Conclusion?
In the vast majority of instances, there are certainly arguments against payday loans which suggest that they are far from the ideal solution. Needless to say, given the way in which the smallest of loans can quickly trigger such an alarming debt spiral, it is understandable to see where such concerns come from.
On the other hand however, there are certain instances when and where careful use of a instant loans could save a consumer a small fortune – such as meeting a late bill payment before penalty fees are faced, or bringing an account back into the black to avoid credit score damage.
The answer therefore really depends on the borrower in question and indeed their circumstances, but while a perfect solution a payday loan may not be, in some instances there are few better.