Have you run out of cash this month? If you have, one option you may be thinking of is a payday loan. But if you’re not careful, rather than helping, it could actually make things worse rather than better.
Demand for payday loans has soared over the last few years so you’re not alone in thinking this could be an option to help you with your debt. But worryingly one in two can’t afford to repay their loans. We really don’t want you to get caught in a debt trap so before you take a payday loan out, make sure you understand exactly what you’re signing up for.
Before you do anything ask yourself these questions…
Do you already have a payday loan?
If you do, please don’t take another one out. If you’ll need another loan to pay off the first, or plug the gap it creates next month, a payday loan isn’t the right option.
Think of it this way: if you borrow £100, you’ll have to repay about £130 within 28 days, which means your bank balance will automatically be down again next month. If money’s tight, you probably won’t have the cash to spare and this is why it’s so easy to get caught in a spiral of debt.
Have you checked out other options?
One of the reasons payday loans are so attractive is the fact that you can get access to cash quickly – sometimes within hours. But it’s a very expensive way to borrow, so if you don’t need the money immediately, consider other options first:
An authorised overdraft will be much cheaper so speak to your bank.
If you’re already at your overdraft limit and the bank won’t extend it, contact your local Credit Union and see if you can get a loan from there.
And if you can plan ahead a bit, applying for a credit card could be a good option. Some cards are designed for people with poor credit scores, so even if you’ve had problems managing credit in the past you may still be accepted. The interest rates on this type of credit card are higher than average but it will still be a much cheaper option than a payday loan.
Will a payday loan actually help you?
If you’re regularly struggling to make ends meet, you can find help through debt charities such as StepChange, the Citizens Advice Bureau or the government-backed Money Advice Service. They’ll give you advice on how to get your finances back on track so you don’t have to rely on short-term fixes such as payday loans.
Moneysupermarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.