What To Consider Before You Apply For a Payday Loan

Payday loans can offer a fast and effective way to access funds for an emergency, pressing bill or household repair. Whether you need to borrow £300 or £1,000, the ability to get same day funds can be very appealing.

However, it is important to remember that payday loans carry some of the highest interest rates for financial products on the market and there are certain precautionary measures you need to take and consider before you apply.

Proper Finance have provided a list of things to consider when you apply for payday loans including:

• Can I afford repayments?
• Did you shop around for a cheaper option?
• Have you considered alternatives?
• Have you asked your current debtors for an extension?
• Are you using one loan to pay off another?
• What happens if you cannot repay your loan?

Can I Afford My Payday Loan Repayments?

Payday loans may offer fast cash, but making sure you are confident in your ability to repay the loan is very important to consider. Failing to meet repayment deadlines can harm your credit score and result in additional fees. 

Consider whether you are going to pay off your loan from your savings or from your income. Assess your regular outgoings to confirm your ability to repay on the specified date, ensuring you won’t fall short of your repayments before your next payday. 

Did I Shop Around For The Cheapest Payday Loan?

While payday loans are generally expensive, not all options are equal. Take the time to explore various lenders and compare interest rates and terms. 

Make use of online payday loan brokers who can quickly compare multiple offers in your area. Opting for the most affordable option can save you money in the long run and provide a more manageable repayment plan.

Have I Considered The Alternatives?

While payday loans provide quick access to funds, the associated high-interest rates necessitate careful consideration. Here are some alternative options to explore:

1. Borrowing from Family and Friends
Consider reaching out to family or friends who may be willing to assist you financially. This option often comes with more flexible repayment terms and comes with no interest.

2. Credit Union Loans
Credit unions are non-profit organisations that offer financial services to their members. They often provide loans with more favourable terms compared to traditional payday lenders.

3. 0% Credit Cards
If you have a good credit score, applying for a 0% interest credit card could be a cost-effective alternative. These cards offer an interest-free period for a specified time, allowing you to borrow without incurring high-interest charges if the balance is paid off within the promotional period.

4. Selling Unnecessary Items
Consider selling items you no longer need. Clothes, furniture, electronics or other possessions can be converted into cash through online platforms or local second-hand stores. This can provide you with a quick way of securring funds without incurring debt.

If Using a Loan To Pay a Bill – Have You Asked For An Extension?

If you are taking out a loan to pay a bill such as utilities, rent or other recurring bills, consider seeking an extension before resorting to payday loans. 

Communicate with your providers; they may offer understanding or alternative payment solutions. Reserve payday loans as a last resort to maintain a healthy financial standing. See information here about payday loan rollovers.

Are You Using One Loan To Pay Off Another Payday Loan?

Using a payday loan to pay off another loan is not advised. This practice can lead to a snowball effect of increasing debt and financial instability. Instead, focus on managing your existing debts responsibly.

What Are The Consequences if I Cannot Repay My Payday Loan?

Failure to repay a payday loan on time can have severe consequences. Late fees, damage to your credit rating and difficulty securing future loans are potential outcomes. Prioritise timely repayments to safeguard your financial well-being.

If you become aware you will struggle to meet an upcoming payment, you must immediately contact your lender. For further information, read our article what happens if you cannot repay our payday loan.