We do tend to see quite a bit of bad publicity about payday loans and this can make us feel that there is something to be worried about. As a payday loan is a loan then there are risks that you need to be aware of which are similar to those of other loans. It is worth being aware of these risks so that you can be careful when you are deciding whether a loan is right for you as well as whether you are the right type of person to take out a loan.
How payday loans work
Payday loans are normally for anything between a few hundred and a thousand pounds. They are available very quickly and no credit check is done. This means that they are available to more people than standard loans tend to be. Repaying the loan is a bit different as well. You need to repay it all in one lump sum payment. This is why you cannot borrow too much as it needs to be affordable in order to make sure that you can repay it all. The repayment date is on the day that you are paid, hence the name. This means that you should have enough money available to be able to make the payment.
Risks of a payday loan
With all loans there is a risk that you will not be able to make the repayment on time. With a payday loan, you have to set up a direct debit for the repayment so it should be easy to repay it. The risks come if you pay is late or if the repayment tries to come out before your pay goes in. You will need to be careful about this and ensure that the pay will be in the account before the payment comes out.
You also need to then make sure that you have enough money to pay for everything for the rest of the month. We all have regular things that we have to pay for and so once a big lump sum, like this loan repayment goes out of our account it can make things really difficult. You will need to be sure that you will be able to manage to cover all of your other costs as well as repaying the loan, otherwise there is a risk that you will need to borrow even more money.
Any borrowing will appear on your credit record and if you want to borrow money using a lender that does do a credit check then they will take a look. Any borrowing they might be concerned by but you can reduce the risk of a payday loan having a detrimental effect on your credit record if you ensure that you repay it on time and do not take out successive loans.
Who should avoid payday loans
If you feel that you will not be able to manage the repayment then you should not be taking out the loan. Carefully look over your past bank statements to see whether you would normally have enough money to be able to do so. If you have any doubt, then think about whether you might be able to cut back your spending in order to afford it. If you feel that this is unlikely then it is better to avoid the loan.
If you have savings then you will have no need to take out the loan so you should avoid getting one. Using savings is far cheaper than getting a loan and so is the wise choice, if you have any.
If you know that you will be able to afford the loan but then will struggle for the rest of the month then it is best to avoid the loan. You might be tempted to take out another loan, if you cannot cover the cost of your bills and this could escalate into lots more borrowing. It is best to be very sensible and only borrow if you are sure that you will be able to afford the repayment and that you will be able to afford to cover the rest of your bills as well.
Who should worry about payday loans
It is good to be aware that you have a loan so that you are always conscious that you need to be careful with what you are doing with regards to your money. You need to make sure that there will be enough to pay the loan and to pay for everything else you need as well. If you are happy that you will be able to do this then you have no reason to worry, but you do need to be careful.
You should enter all loan agreements with the same caution and make sure that you take the repayments seriously or else you could end up paying out far more for the loan that you originally expected to.