Quick financing 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 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 loans through the Internet
The issue here is that the companies involved require very little details, 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 cash loans in order to pay off other creditors, when their pay cheque cannot cover their outgoings for the month. Of course, these loans are still debt, despite the fact that they are supposed to be only for the short-term, 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, they become more of a financial burden than a solution to a brief problem. Money experts suggest that where taking out a cash advance 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 same day 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 borrowed as low as possible. When borrowing from a 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 a loan in an emergency. If you have looked at all other avenues of lending and payday lenders are 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 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 loan websites.