May 17, 2012, 8:23 am
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120 Day Payday Loans for Easier Repayments

August 28th, 2011

Payday loans are a good option for customers who need quick cash with a simple application process, those with bad credit ratings and those who only need to borrow money for a short space of time. However, in a situation where you need to borrow between £100 and £1000 quickly, the short term nature of a payday loan can mean that repaying the loan with the following month’s pay cheque leaves the customer with a deficit in their next pay, meaning at the end of that month they will need to borrow again. This can be a deterrent for those needing to borrow quick cash.

If a customer is unable to pay back their one month payday loan in the time set out in their agreement then the interest rises and penalty charges are added. Even if the customer is then able to pay back the full loan over time they may end up paying the full cost of the loan multiple times over. With 120 day payday loans this problem is eased. 120 day payday loans have the same terms as a one month payday loan, and the same benefits; they can be applied for online with no need for credit checks and the cash can be deposited into the customer’s account within 24 hours, but the repayment terms are spread out over 4 months rather than the standard 14-31 days.

Payday loans criticism

Of course, payday loans have been criticised for having high interest rates, and this is no different with 120 day payday loans. The difference here is that the interest or charge is laid out in the loan agreement so the customer knows exactly what they are expecting to pay back and when. Of course, the charges will be higher than on a shorter loan period, but these longer loans can be a good way of ensuring that you are able to stay afloat in the interim period between getting the loan and paying it back. A customer will need to be absolutely sure that in the 120 days between the loan appearing in their account and the final loan installment, that they will have enough in their pay cheque to cover the loan repayments and still be able to cover their necessary living expenses, but should this be the case it can be a way of preventing having to take another loan out in a short space of time.

The installment plan makes the repayments for a payday loan far more flexible, and the loan interest should always remain at what is stated in the agreement, a far safer plan than risking not being able to pay back the full amount on a 31 day loan and watching the interest rack up quickly and sharply to an unmanageable level.

It is always important to remember that the basic premise of a payday loan is that it is a quick fix for a temporary financial problem. The reason the repayment process is so short is to ensure that your financial situation will not change during the loan period and to get you out of debt quickly and simply. It is necessary to make sure that whichever repayment terms you choose fit with your own financial situation best, and that it will not negatively affect your financial situation. Once you have decided on a longer term loan it is worth bearing in mind that a longer loan period is a more significant commitment than a shorter loan, but also that, used correctly, a 120 day loan can be the perfect way of taking out a small loan and keeping yourself afloat without the worry of finding yourself in the same situation the following month.

Payday Loans and Middle Income Earners

August 26th, 2011

Recently an unexpected trend in payday loans borrowers has been revealed. It is a common misconception that most payday loans UK will go to students and the unemployed – high-risk customers who will be attracted by the instant nature of payday loans. This is based on the fact that most do not require a credit check or any kind of information about the customer’s credit history. Not so apparently as a study has found that 57% of payday loans customers are middle income earners. These people fall into the £25-50K income bracket, well above the national average and tending to belong to slightly older people in skilled professions. These customers don’t necessarily have bad credit ratings, or debt problems. In fact, they are far more likely to have families and mortgages than the 24% of payday loans borrowers who fall into the lower income brackets.

Why this trend in payday borrowers

So why are people who already earn above the national average unable to get from month to month on their pay cheque? The simple fact is that with the economy at a dangerous low, prices for day to day essentials are skyrocketing, with petrol, food and utilities at an all time high. Rents and mortgages are similarly high, and wages are not rising to meet these costs. So where someone earning £30K a year would have been relatively comfortably off pre-recession, they are now struggling to make ends meet month by month. People still need to feed their families and pay their bills to keep a roof over their heads in a difficult climate, and are finding that their wages and outgoings just aren’t matching up any more. Thus, the quick and easy nature of payday loans proves a temptation when it is still a week of so until payday and the money has run out.

Middle earners may also find payday loans online an easier proposition than low income earners as despite the relatively high interest rates, a fee of £50-£75 for a loan of £300 does not seem like such a large amount of money to those earning a couple of thousand pounds per month, whereas to someone with a monthly income of less than £1000 it is likely to take away from something else that needs to be paid for. Payday loans are also immediate debt, which needs paying back quickly but is also then not a worry for the future. High street banks have been forced to raise their interest rates to an average of 12.49%, a much higher rate than the Bank of England base rate of 0.5%. With bank funded loans, customers are taking on a much longer-term responsibility. Knowing that you are capable of paying off a small loan within a month is one thing, but you can never be sure what your financial situation will be in 6 months, or even a year. High interest rates make bank loans a much riskier financial commitment than before, and make payday loans seem the easiest and most convenient way out of short term debt.

Remember the risks involved in payday loan borrowing

It is always worth remembering when taking out a loan, however small, that it is still debt. If a customer is already struggling with debt then taking out more debt is always a bad idea, whatever your position. If possible, living frugally for a few days and putting the £75 you would have spent on your loan into a savings account on your next pay day will prevent such a situation from occurring the next month, preventing you from falling into an inescapable debt cycle.

Struggling with debt, or living on much reduced means, especially if you have a family is a severe problem, and one that can lead to emotional stress as well as financial worries. Free debt advice services are available for such situations, and can often point you in the right direction for solving these problems easily and comfortably. With middle earners struggling as much as those with a low income, now is a time when there is no shame in seeking financial advice. Turning to a payday loan as a one off solution can be a helpful and convenient way to bridge the gap between pay days, but if this becomes a regular situation it is worth analysing what you can do on your own to fix the problem.

The Top 5 Financial Mistakes and How To Avoid Them

August 26th, 2011

Along with moving house and job stress, financial struggles are one of the top reasons for excessive stress in life. We all need money to stay afloat, and managing your outgoings versus income, as well as trying to allow yourself a few of the things you want rather than just what you need all of the time is one of the most difficult challenges in day to day life. However much money you have, you are bound to want more as your threshold for what is in your reach shifts to accommodate your budget, and a common pitfall is spending everything you have every month, leaving nothing over for savings. Not knowing your limits and living right up to what your means allow each month is one reason so many people fall into the devastating debt cycle that can lead to severe financial troubles that can mar your life in the long term. Here we list the top 5 financial mistakes people make – and how to avoid them!

 

Frivolous spending

In today’s instant culture, money seems far more expendable than it used to. Think about your journey to work, you get on public transport, grab a cappuccino and a croissant, maybe pick up a paper for later on. Without thinking about it, you’ve probably already spent between £5 and £10 on items that not only did you not need, but you could easily have gotten for cheaper or even for free with a little prior thinking. Taking breakfast to work, walking in and checking the news online may mean putting in a little more effort but over the year it will save you hundreds of pounds, without you feeling deprived. This is the same for new technologies like mobile phone upgrades, video games and mp3 players. When they first come out they cost far more than a year down the line, and people will often buy them to stay up to date when they already have older versions of the same technology at home. If you have three old mobile phones lying around you probably don’t need another one until the price drops a bit!

 

Buying things you can’t afford on credit

Tying in with frivolous spending is buying expensive items on credit just because you can. Consumers often think that because they can get credit to cover a new television or expensive kitchen equipment that they can afford it. The truth is if you need to get it on credit then you can’t afford it. Saving up for a few months with money from your pay cheque means that when you do eventually buy the item it is yours outright, and the financial burden of paying for it has already passed. If you won’t be able to afford it after a few months of saving up, then it’s probably not a purchase that you should be making in the first place!

 

Subscriptions and memberships

Do you have a gym membership? Most working adults do or have done at some point. And how often do you go to the gym? A large percentage of people with gym memberships go less than once a week, and at a figure of around £50-£80 per month, it would be far cheaper to pay for one off exercise classes, run in the park or take up swimming twice a week. Similarly, if you’re paying for TV or music subscriptions that you are not using but think you might, one day, it is worth cancelling these and paying for them when you really want to use them. Subscriptions and memberships often get lost amongst your monthly spend as it is a regular payment, but it is money you don’t need to spend going out of your account for no reason, often just subscribing to a lifestyle rather than a service.

 

Living on borrowed money

Credit cards, overdrafts and loans all offer a quick solution to debt or financial struggles. However, these ways of obtaining cash all carry hefty interest rates, meaning although this money is yours in the immediate, in the long run not only do you need to pay this back, but you will be paying your own hard-earned cash out for the privilege. Often it seems like a good idea to take out a credit card when it is offered to you, or take a loan out for general spending, making your bank account look healthier in the process, but these are long term commitments, and if your situation changes you may find yourself living entirely off of money that isn’t actually yours, leaving you very little of your own money for savings and legitimate spending money of your own. It can be quite a negative experience mentally to feel that you have no money of your own, so it is best to avoid overdrafts or loans as expendable cash.

 

Living payday to payday

It is human nature to live within our means, spending everything we earn then waiting for the next pay cheque to come through for the process to begin again. But this is a dangerous cycle as it leaves you with very little wiggle room should your situation change, and stops you having a chance to save money for expensive purchases in the future. Also, spending that close to the line of your account/overdraft can lead to you accidentally going over your limit and paying excessive and unnecessary fees every month. Try to cut back on spending and save a little money in a high interest account every month. Payday loans can be a helpful way of staying out of your overdraft and away from longer term borrowing commitments, as long as they are used only for one-off times of financial struggle and paid off as soon as your next pay chque comes in. In this case, a payday loan is a short term and helpful way to make sure you stay afloat and that your borrowing ends as soon as the month does. After paying the loan off, look into opening a savings account and saving a little bit of extra cash every month (even just your daily cappuccino) to keep you out of debt in future!

Bank Charges – Staying On Top Of Your Finances

August 22nd, 2011

Over the past few years, banks have increasingly come under fire for what have been deemed ‘unfair’ or ‘unexpected’ charges and penalties on customers’ accounts. Until relatively recently banks would apply charges of up to £30 per day to accounts as penalties for going into an unauthorised overdraft or bounced cheques or direct debits. As often this occurred a few days before a customer’s payday these charges would quickly rack up, costing upwards of £100 every time. If this happens more than once in a month, people quickly find themselves spending a sizable chunk of their monthly pay just on bank charges.

The official line from the banks

The banks explained bank charges as being for the necessary ‘administration’ caused by a customer borrowing unauthorised money, but customers soon became wise to the fact that it would cost more to keep charging these high rates day by day than to take a one off penalty payment. Also, if a person is struggling with their finances and unable to make it through the month on their pay cheque, the least helpful thing the bank could do would be to take more money from them, essentially making them even less better off month by month.

 

This prompted an investigation by the FSA (Financial Services Authority), who deemed the charges excessive and ruled that banks should charge no more than a £12 penalty charge for unauthorised borrowing, and that customers who have fallen foul of these high charges should be able to go to court to claim back their money.

At the same time, an investigation was made into Payment Protection Insurance (PPI) on bank loans. Often this has been applied to loans without it being pointed out to the customer in advance, and adds a sizable amount to the monthly payments, and how much a customer will be paying off of the loan in the long run. In many cases, PPI does not apply to the customer (for example in the case of those who are self-employed), meaning those customers are paying extra money for their loan for no reason.

Of course, PPI is a good idea for those in regular employment that are worried their situation might change, especially with the unstable financial climate making jobs more and more scarce. Payment protection in this case will save someone from having trouble making their loan repayments should they become unemployed, and is a useful safety net for people in jobs which may not be completely secure. However, as the banks have often added this to a loan contract without asking the customer in advance, and have skimmed over the contract before signing, consumers were upset that they had been paying for a service that they didn’t necessarily want. In the small print of these payment protection plans there is often a list of people who will be ineligible should they find themselves out of work, and this was often not discussed either, despite the bank being aware of the customer’s position when selling the loan.

The FSA deemed that banks should also pay back PPI payments to customers who has been mis-sold the insurance, leaving a huge number of consumers going through the courts to take back their overdraft and PPI charges. This is a lengthy process and is not always successful. So what can you do to avoid getting into these situations with the banks in the first place?

Short term cash crunches

If you are hoping to borrow money for a short space of time or unexpected expense, it is worth looking into taking out a payday loan. These loans remove the need for PPI as they are taken out over such a short space of time, and will save you from excessive and unnecessary bank charges by keeping your account topped up until your next pay cheque arrives. You tend to make a payment of around £25 in interest for every £100 taken out, which keeps the process simple enough for your to be able to manage your finances for the next month easily, and as their terms tend to be only a month you stay away from paying large amounts of interest over a long period of time.

Should you be looking for a longer term loan then a bank loan is the safest way to go, but make sure you have the terms laid out unequivocally for you, and that you know exactly what you are paying for. With payday loans the short amount of time and relatively low amounts of cash borrowed means that the whole period of debt is short and painless, but with a larger loan it is a much longer commitment, so it is always worth taking your time and asking the bank to explain everything to you – more than once if necessary!

Guidelines for payday loans

August 13th, 2011

Payday loans can be a useful and easily accessible way of obtaining cash in a financial emergency. With a quick and easy application process, and no need for credit checks, consumers have been turning to online payday loans more and more to fill the gap between paydays, and in times of financial crisis.

However, payday loans typically have high APRs and short repayment terms, meaning that they are not financially viable for everyone. Below are outlined some tips that everyone should take into account when thinking about taking out a payday loan.

 

Payday loans are not free money

 

Payday loans have frequently been criticised for having substantial interest rates, sometimes over 2000%. It is worth taking into account that payday loans are rarely meant to be taken out over a long period of time, making this figure somewhat misleading, with the actual amount you can expect to pay being in the region of £25 for every £100 you take out. However, this figure rises substantially if you are unable to pay back the loan within the standard 30 day repayment period set out in your loan contract, and with penalty charges and interest rising rapidly once you have missed a repayment, customers can find themselves paying back the total cost of the loan multiple times over should they struggle with repayments.

UK payday loans online are exactly the same as standard loans in that they must be paid back, in full, under the terms of the contract. Despite being easily obtained and relatively flexible in amounts, they are real borrowings and add to a customers debt in exactly the same way as a bank loan or credit card. When taking one out, you must be prepared to pay it back in full, plus interest.

 

Research loan providers

 

Payday loans companies are springing up constantly online. With such a wide range of loans companies offering what appears to be the same deal, it can be tempting to go with the first loan you find, but there are dangers in doing this. Always make sure you know exactly what the terms of your loan are, and how much you are expecting to pay back. For your own safety, you should only borrow from loans companies that are regulated, or affiliated with a financial services provider that you are familiar with, and use comparison websites to get the very best deal you possibly can.

 

Don’t ask for more than you need

 

Payday loans offer small loans from around £100 to £1000. In a financial emergency, you should work out exactly what you need to cover your expense and take that amount, with the intention of paying back this full amount on your next payday. In the case of an unexpected expense, it can be very stressful trying to work out where this money is going to come from, and payday loans ease this fear, however, should you take a little bit more cash than you actually need, to ‘get through the month’, you will end up spending far beyond your means, and may find yourself unable to pay back the loan come your next payday, or be forced to take another loan to pay the original one in full, leading to a vicious circle of debt.

 

Make sure that a payday loan is your best option

 

Payday loans are a great way to bridge the gap in a financial emergency, such as an essential household maintenance problem, or unexpected bill. In these situations, you are faced with a rare but immediately critical problem that can only be filled with fast cash It is not going to be a regular situation and you will be able to budget and pay the loan back. For general spending, it is best to look at other options with lower interest rates, such as credit cards or an overdraft, and for large purchases a credit card is a good way to buy the product in one payment, whilst paying back over a long period of time without racking up too much interest.

 

 

If you are certain that a payday loan is your best option, and that you will be able to pay it back in full, then payday borrowing can be a great way to ease financial stress and get through difficult times easily and without getting into long term debt which will affect your life and credit rating for the longer future.

How to live within a budget

August 12th, 2011

In recent times, money has become tight for most people. Banks have cut back on lending since the credit crunch, VAT has risen and food and fuel prices are at an all time high. In most cases, people’s salaries are not reflecting this higher cost of living and people are finding themselves living on less cash monthly than ever before, cutting the possibility of savings and disposable income in half.

It is in situations such as these that budgeting becomes not only necessary, but a helpful and proactive way of keeping your money situation under control and stopping yourself from sliding into debt. Budgeting is a relatively simple process to begin with; start by listing all of your income and expenses in order to work out your total disposable income monthly. Sometimes you will find that your income and outgoings do not match up, in the case that your income is higher than your outgoings, it is worth looking into a high interest savings account and trying to put as much into that monthly as you can realistically afford. These savings should rack up quickly and will leave you a safety net of freely accessible cash for financial emergencies, large purchases and investments. In other cases, you may find that your outgoing considerably outweigh your income, and in this case there are a number of things you can do.

Get the pen and paper out

Work out if your outgoings are all completely essential. Once you have covered basic essentials like food, fuel, tax and housing you can look at what else you spend out on monthly. Clothing bills can be slashed by shopping in cheaper stores or using your creative side to make or customise old clothes, gym memberships can be cancelled in favour of running in the park or aerobics at home, and walking to work will give you extra exercise as well as cutting down on transportation costs.

Top Tip

If you are struggling to work out where your money is going, and feel you should have more disposable income, it is worth keeping a note of everything you spend for one week, noting every single time you take your wallet out – even if it’s just for gum in the corner shop. You will quickly be able to identify your week spots when it comes to unnecessary spending, be it a daily coffee, or lunches out at work. Try to separate out your needs from your wants and keep a strict budget for needs, with a little left over for the occasional treat. This is will stop you feeling like you are being restricted and prevent a spending spree on payday!

Another way people find themselves spending more than they can afford without noticing is through debts. Credit cards are a helpful way of obtaining emergency cash, but are frequently seen as ‘free money’, being used for non-essential purchases and then paid off at the minimum amount monthly. As interest racks up, these debts do rise, until your monthly payment starts taking out a large chunk of your income. Cutting up credit cards may seem like a terrifying leap to make, but with small, short term loans being so freely available at the moment, you will always have other options.

Should you use instant credit facilities?

Payday loans are a way to borrow for a financial emergency, and are meant to only be borrowed from payday to payday, meaning all interest and the loan in full is paid back within a month, stopping you from getting into long term debt or having debt creep up on you as it can with a credit card.

Avoid overdraft charges by trying to stay well within your budget monthly, as these charges can also start to take out a large chunk of your disposable income monthly, rising quickly day by day and causing a deficit in your account before your pay even goes in. If you look like you are going to get into an unauthorised overdraft, call your bank to see if you can have your overdraft extended temporarily. This will still cause a deficit, but it will remain static until your pay goes into your account. Alternatively, borrowing a short term payday loan or cash advance is the best way to stay on top of charges, as long as you are certain you can afford to pay them back in full and won’t need to borrow again later in the month.

 

Should you stick to these ideas, it should be relatively simple to build up a small pot of savings for emergencies, whilst living comfortably but not extravagantly on your earnings.

Should Payday Loans be Banned?

August 9th, 2011

OK a slight curveball here. We all know that payday loans fill a gap in the market for consumers with short time financial difficulty, making it possible to obtain small amounts of cash quickly and simply, with no need for credit checks or long and complicated application processes. But do they do more harm than good? Never to be one to shy away from what is really important or on the lips of those that oppose the payday loan concept, we decided to tackle it head on. KAAAHHPLOW!

What seems to be the problem here then?

These loans are given out freely with loan companies not making stringent checks on a customer’s credit history or current financial situation, they are increasingly offered to high risk customers, and those already experiencing serious debt problems.

Number 1

Customers in this situation are already clearly not managing their money effectively, and are far more likely to default on their loans, or fall into a vicious circle of debt. Missing repayments means that the added interest and penalty charges can lead to a customer paying the total cost of their payday loan multiple times over, and in a situation where a customer could not afford to pay off the original balance in full in the first place – this just worsens an already sometime desperate situation.

Number 2

Some payday loans companies are unregulated, not us! Meaning the consumer is not protected by the law, and allows the lenders to employ sometimes brutal tactics for getting their money back, leaving customers in severe emotional as well as financial stress.

Step forth the lobbyists

It is with this in mind that many lobbyists have called for payday loans to be banned altogether. This has in turn led many in power; including MP’s and the credit advisers Consumer Focus, to warn that this would just lead to high risk customers being forced to turn to illegal loan sharks in order to obtain cash at short notice – a far more dangerous practice than borrowing from well known and regulated payday loans services. Consumer Focus have suggested a tightening of the rules surrounding payday loans, making them more difficult to obtain for customers with already quite serious debt problems, making the loans work more effectively and safeguarding the customers taking them out.

Some suggestions

Among the rules suggested by Consumer Focus is a limit of 5 payday loans per household per year. Experts have already suggested that payday loans customers should seek financial advice if they need to take out more than three payday loans in any one year, so this advice would just mean payday loans companies would be required to direct customers to independent debt advisers should they reach their yearly limit.

Payday loans companies should also share information between them, preventing borrowers from taking out more than one payday loan at a time – one of the most easy ways to fall into a debt trap using payday loans. Payday lenders should perform more stringent checks on customers to ensure that they are able to make repayments in full on their next payday, meaning they will not be affected by the high APRs and devastating penalty charges which inevitably lead to the cycle of debt.

So, should instant loans online be banned?

Payday loans do fill an essential gap in the financial market, and if used responsibly can be a helpful avenue for those with short term financial difficulties. If customers are aware of the situation they are putting themselves in, and are certain they can meet repayments in full on their next payday, there should be no call for payday loans to be banned. However, and there is always a however in most fair arguments, there should be tighter restrictions in place to make sure that vulnerable customers do not get themselves into a worse financial situation just through desperation.

Can you take out multiple payday loans?

August 3rd, 2011

Payday loans can be a quick fix in a difficult financial situation. They are offered to anyone with an income, deposited into your account almost instantaneously and are easily available. The problems with the cash advance loan online arises when a customer is unable to meet the repayments in full, leading to high rates of accrued interest and large penalty charges, meaning even less chance of the customer managing the repayment the following month. Taking out multiple payday loans increases this risk hugely.

When a customer cannot meet the repayments on a payday loan, it may be tempting to take out another one. Payday loans companies online will not lend more than one loan to the same customer at once for the specific reason that the loans are small cash advances meant to get a customer through the month, and be paid back in full on their next payday. The customer should borrow exactly what they need, and with payday loans going up to £1000 it should not be necessary to take out more than one. However, with there being so many different payday loan lender companies out there, and this number steadily increasing, it is easy to take out more than one in a month from a number of different companies. Payday loans companies do not run credit checks, or investigate your previous borrowings, so you will not run into any trouble when it comes to borrowing from more than one loan company.

Taking out more than one payday loan

However, the reason customers generally take out more than one loan at once is because they are unable to meet the repayments for their original loan. Paying off this loan with another payday loan may fix the problem in the short term, but will quickly lead to the vicious cycle of debt that may result in having to take extreme measures, such as bankruptcy. Customers that are unable to pay off one payday loan will clearly not be able to pay off two or more. You end up being able to pay off merely the interest on your loans every month, and never actually cutting into the original debt. With the interest accruing, inevitably the customer will be unable to even pay off that monthly amount.

In this situation debt consolidation may be the only way out. This can be done by taking out another personal consolidation loan, paying off all of your debts with this higher amount of money and then paying this loan off in one smaller monthly payment. Interest will be lower, and you will be able to pay off the loan over a long period of time, which is a longer term commitment, but the safest way of getting yourself out of a drastic financial deficit. If this is not available to you (for example if you already have a bad credit rating), it is always worth contacting the loan companies themselves, as they may offer you the chance to pay the loan back over a longer period, or in stages. This is at the lender’s discretion, but worthwhile action to take in a desperate situation.

It is not recommended that you ever take out more than one payday loan at a time. Only borrow as much as you need and pay the loan back within the terms set out in your original contract. For situations where you are struggling with debt in the long term, there are free advice services that you can contact, such as the Citizens Advice Bureau or the Consumer Credit Counseling Service, who will offer you advice on getting out of your difficult financial situation.

Household emergencies that need emergency solutions

July 26th, 2011

There will inevitably be times in your life when an unexpected expense leads you to need to look into temporary forms of credit. Problems such as household emergencies, unexpected bills or necessary large purchases can mean that your incomings for one month do not cover your outgoings, and if you do not have savings this can lead to financial stress.

Once you have explored avenues such as temporarily extending your overdraft (which is interest-free and will not affect your credit rating), two of the most popular options are payday loans online and credit cards. But which one is best for the average consumer?

Choosing a payday loan because of bad credit

Payday loans are an obvious choice for customers with bad credit ratings. They are quick and easy to apply for, and generally need nothing more than proof of your earnings to be deposited into your account within one working day. They charge a fee which does work out at a relatively high APR if taken over a long period of time, but with monthly charges running at around £25 for ever £100 taken out, in the short run these loans do very little to contribute to long term debt problems. The negative side of this process comes when customers take out a payday loan to cover an expense and then are unable to pay it back with their next monthly pay cheque. This leads to rapidly growing charges on a relatively small loan, making the loan far more expensive over time, and increasing the risk of the customer getting into an inescapable cycle of debt. Small emergency loans can also be offered by unregulated companies wherein the consumer has no protection from the law, and companies can take unfair and sometimes brutal steps in order to make their money back.

Credit cards, on the other hand, come from almost exclusively regulated companies, often the consumer’s own bank, and do not need to be paid back straight away, giving the customer the opportunity to pay what they can afford monthly until the balance is paid off. However, although credit cards are relatively easy to obtain (two thirds of adults in the UK own at least one credit card), they are difficult to get if the customer has a bad credit rating to begin with, and take a far longer time to apply for and to arrive in the post, whereas payday loans are almost instant. On the plus side, credit cards can be used to improve a customer’s credit rating, as paid off regularly over a long period of time they add to the customer’s financial viability. Credit cards have lower APRs than payday loans and so work out cheaper when paid back over a long period of time, and rates descend even further if a low-interest card is used to consolidate debts in order to make one, lower monthly payment.

If your emergency expense is a large purchase, credit cards are ideal as you can pay for the item in one go, and then pay back smaller, manageable amounts monthly. Interest will be added, but as long as you pay back over the minimum amount each month the item will not end up costing you much more than it would have originally. Payday loans are not really suitable for large purchases, as the reason you need credit to cover the cost is that you do not have enough money coming in with your pay cheque to cover it in the first place. As payday loans are meant to be paid back in full on your next pay day, you are unlikely to be able to pay the loan off with the amount you have coming in each month. An ideal solution to non-essential large purchases is to put small amounts monthly into a savings account and then pay for the item with your own cash once you have saved enough. In the case of unexpected or emergency purchases, a credit card will be your best option.

Problems with credit cards

Where credit cards prove problematic is when a customer realises that they are unable to make repayments, often because they have spent over what they can afford on the card, or commonly because they have more than one card with outstanding balance. One credit card is easy to get, but once you have one it is even simpler to get two or three more, and there is no limit on the amount of cards you can own. Payday loans can only be taken out one at a time, meaning you cannot get another loan before your original borrowing is paid off, which does prevent taking on more debt than you can reasonably manage. Where credit cards offer relatively small amounts of credit, once you have three of four cards with a few hundred pounds on each, your debt can become quickly unmanageable. In this case, with overdue balance on more than one card, a small, fast loan may be necessary. However, this should be just enough to get you back under your limit on your cards, in order to prevent penalty fees, and should be a small enough amount that you can pay back in one go on your next pay day.

Once you have recovered your debt from critical to manageable, a low interest, high credit limit card can be a good way to consolidate your debts, and bring your monthly repayments back under control.

For those with bad credit ratings, a payday loan can be the only way to go, but it is worth talking to your bank about a low interest, low balance credit card to keep for emergencies. Credit cards are a form of long term debt, and a much higher responsibility than a payday loan though, so it is always important that you think about whether you are prepared to take on this responsibility before applying for any form of credit.

Quick Payday Loans and the Circle of Debt

July 19th, 2011

Payday loans online can be an extremely advantageous solution for people finding themselves in need of a relatively small cash injection towards the end of the month, and that find themselves unable to borrow from their bank due to a poor credit rating or lack of time.

These quick online cash loans remove the need for endless application forms, interviews, credit checks and guarantors, making cash deposits quick and hassle free. Where lenders have come under attack is in their high interest rates and tendency to lend to high-risk customers, essentially perpetuating a vicious circle of debt for those who are already struggling financially.

The issue with fast cash advances through the Internet

The issue here is that payday loans companies do not require a credit check, making them perfect for those who cannot get credit elsewhere. Surveys have found that this has led to almost 70%  of customers being young, single and on a low income. Increasingly, those with outstanding debts have had to rely on quick payday loans in order to pay off other creditors, when their pay cheque cannot cover their outgoings for the month. Of course, payday loans are still debt, despite the fact that they are supposed to be short-term loans, and the last thing customers who are already not able to meet their financial commitments with their earnings need to do is add to their debt. This means that on their next payday, paying back the loan has to come out of their pay cheque, but with interest, meaning the customer is already lower on money than they were before they took out the loan. In order to refinance their account from this loan they are forced to take out another loan of a slightly higher amount and this creates a cycle of borrowing, repayment and borrowing again that will eventually leave the borrower in an unsolvable financial crisis.

In this situation, online payday advance loans become more of a financial burden than a short term solution to a brief cash flow problem. Money experts suggest that where taking out a payday loan may be the answer to a financial crisis if all other avenues of lending are closed to the customer, it is rarely a good idea to pay off one loan with another, as it is a very short term solution which may harm your credit score irreparably in the long run. Looking into a high-interest savings account or ISA before getting into debt is the ideal solution, as when you are hit by an emergency expense you will already have a pot of money to dip into, which you can then replace at your leisure, and without the worry of interest or heavy-handed tactics to get you to repay the money.

Getting out of a cycle of payday lending

But what if it is too late for you and you have already gotten yourself into this circle of debt? There are ways to get out of debt, and the most important thing to do is to work out how much you owe, how many creditors you have, and which expenses are the most urgent. Once you have worked out a total of your debt it will be easier to manage, and not quite so daunting to imagine getting out of it. Look into credit counselling or free financial advice services to work with someone who can help you negotiate repayment plans and work out compromises with your creditors. It is usually worth consolidating your debt through a low interest loan that will then break your debts down into one manageable amount every month.

However, if your credit rating is low, and this is what forced you to take out payday loans in the first place, you are unlikely to be able to take out a loan from a safe source, in which case your only solution may be to look into bankruptcy. This should always be used as a last resort, and will affect your credit rating severely in the long run. It does, however, write off your debts and allow you to get back on your feet living life in the black again. You will not be able to get credit for a set period of time which means relearning to live on your income, and not spending more than you earn.

Being cautious with online loans

When looking at payday loans there are a few points to note, in order to stay out of the circle of debt and to make sure payday loans are an easy and pleasant experience for you.

 

  • Keep the loan amount borrrowed as low as possible. When borrowing from a payday loans UK company try to work out in advance exactly how much you need for the situation you are in and borrow nothing more than that. With cash loans companies online offering up to £1000 to be deposited into your bank within one hour, it can be tempting to borrow more in order to give you a little extra for the month, but this is your own money you are borrowing, and paying the company for the pleasure. Remember that you will need to live off of the remainder of your pay cheque for the rest of the next month.
  • Only take out no credit check payday loans in an emergency. If you have looked at all other avenues of lending and a payday loan is your only option then use it, but ensure that the expense really is an emergency and could not wait until your next pay day. Online short term loans should never be used for casual spending or non-essential purchases.
  • Budget. Work out exactly how much money you have coming in every month and how much is going out. What is left is your expendable cash every month. Try to take any emergency purchases out of this and cut back on luxuries for the rest of the month. If this is not possible and you are certain that you can pay back everything you owe the following month, only then should you look into payday loans.