Are payday loans a good short-term option?

If a financial shortfall has prompted you to consider taking out a payday loan you’re certainly not on your own. There’s been a huge rise in cash strapped people taking out so called short-term “payday” loans to tide them over a period – usually of only a few days – when they are short of money. 

However debt charities are also seeing growing numbers of people coming to them for debt help after taking out several payday loans and not being able to pay them back. So if you’re thinking of opting for a payday loan as a financial stop gap it’s important to bear in mind that they should only ever be viewed as a short-term solution.

If you find yourself taking out multiple loans of this type, it’s usually a symptom of more serious money problems that need debt help.

Payday loans though, can – in certain circumstances – be a useful and comparatively low cost source of short-term cash, when conventional sources of credit harder to come by. But it is absolutely essential that they are never used to borrow money on a longer term basis, and that when you take out the loan you know exactly how you will be able to repay it, together with interest it has racked up. The term “payday” refers to the purpose of such loans – to cover outgoings between now and the next payday.

The cost of a payday loan varies and there are increasing numbers of providers so it pays to shop around, but interest of around £45 on a ten-day loan of £400 is around average.

But many people find that they hit problems when they get stuck in a regular cycle of taking out payday loans. The first time you take out a loan, the extra money helps you sort out your short-term money problems and you can go back to normality. The next month though, if you don’t have the funds to repay the loan, it can be very tempting to take up the loan provider’s offer to roll it over for another month. Once this cycle starts it can be very difficult to get out of the trap of taking out a new payday loan every month, especially when you are stressed about your finances.

There are alternatives to payday loans, including loans from community-based credit unions. But if you find yourself with multiple payday loans and can’t break the cycle, it’s best to seek help. Call us now for a free, confidential chat about practical solutions to your financial worries.