Pay Day Loan Interest is not as high as it seems
Although payday loans are often criticised for having high interest rates, the interest attributed to them isn't quite as high as it first appears. Many people incur late payment charges on credit cards or overdrafts and they also pay off those forms of lending over a longer period meaning every month borrowers pay interest on their loans. However, with payday loans the usual rate of 25% interest is not as high as it might seem, because it is all paid in one go when the loan is paid back on pay day. With mainstream loans, the money is paid back over the course of a year or more along with potential charges and late fees.
As a relatively new form of lending, payday loans provide those of us recovering from the recession with a little extra money to bridge the gap if we get half way through the month and realise we have unforeseen expenses to pay. In the past mainstream loans were the most attractive option because they had low interest charges during the boom period and were plentiful, but now the markets have changed and moved payday loans into a more favourable light.
It has also been proven time and again, that taking out a credit card can lead to bad debt piling up. The temptation to put one more impulse purchase on to the credit card can be too great for some people and for them, a payday advance or loan is a far superior option.
Short term loan solutions
If you've had bad experiences with debt in the past and you want to break the cycle of borrowing more than you need and having to pay back more than you can afford, for some people payday loans could be an answer. For example, if Carrie has paid off all her debts and she doesn't want to buy anything new with a credit card because she knows it leads to her buying shoes she doesn't need, instead of using her card and risking a failure of willpower, she could take out a payday loan instead and pay it back the day she gets paid. She would not even need to write a cheque because the amount would be direct debited from her account. That way, she would pay for the essential things, without being tempted to buy the extra things we all seem to want when we have limit available on our credit cards.
To girls such as Carrie, whilst payday loans UK are sometimes regarded as being less than ideal due to their associated interest rates, the 25% interest rate is not nearly as bad as paying for things she didn't need and paying interest on them and getting back in to debt. So some people can save themselves money by opting for a single, one-off payday loan rather than using mainstream lenders.
It's always vital to make sure that you plan your finances according to your ability. If you aren't working, or if you will not be earning enough to repay a payday loan, then it probably isn't the right option for you. If, however, you have a history of only making minimum payments on credit cards, it may be a way of forcing yourself to repay the full amounts in a shorter amount of time. That's a good habit to get into, and it may be a useful one. Don't forget, just because you apply doesn't mean that you are under any obligation - even if you're accepted.
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