Are Payday loans the right choice for you?

Wednesday, 27/08/2014

Are Payday loans the right choice for you?

It’s a question which deserves some consideration. For a start let’s think about how they came about.

What happened before payday loan companies?

It is not that long ago that in the UK payday loan companies didn’t exist at all. Needing short term credit though is not a new issue. Many people would use overdraft facilities provided by the banks, but this could often incur charges if the overdraft limit was exceeded. If overdrafts were not possible many would turn to borrowing from friends and family, this can be a good way to lend but is often not possible or appropriate.

If none of the legal ways were possible and people were desperate enough they would possibly consider using illegal methods of funding often referred to as “loan sharks”. Unregulated and unprotected this could be the start of a spiral of debt often resulting in long term hardship or suffering intimidation from disreputable lenders.

Payday Loans take off

So there is obviously a need for short term finance, and payday loan companies have filled this space. As a new part of the financial sector the regulation was lacking at the start and some companies would take advantage of this by not taking care of their customers as they should. This has given the sector an image widely seen as opportunistic and one that preys on the vulnerable.

That is largely now in the past as the FCA are keen to clean up and remove the disreputable lenders from the market place, allowing the good customer focussed companies to cater for the short term lending needs of the UK.

So are payday loans the right choice for you?

This depends on you and your circumstances. It has to be remembered payday loans are designed and should only be used for short term finance. It becomes expensive if you use them for a prolonged period of time. If you have an emergency like a car breakdown which means you need quick cash that can’t wait until payday, this is when it may be right to consider a payday loan. It is also important to budget this in to your monthly expenses as on your next payday you will need to repay the loan.

If we go back to the car breakdown scenario, it may be you rely on your car to get to work so fixing it quickly can save you issues about needing to take time off and losing pay, or having to find more money for taxis or other methods of travel.

As long as you remember that the service is to be used responsibly for emergencies and to only use a responsible lender you should see the benefits of the service. If for whatever reason you find your circumstances change while you have the loan and you can’t repay on the specified date it is important you contact your lender. At Redwallet we much prefer to work with you to help you resolve your financial difficulties. If you don’t deal with your financial commitments your situation will become even harder to manage.

Payday loans are not suitable for, and would be expensive as, a means of longer term borrowing and are not appropriate if you are in financial difficulty.

Representative 1269.7% APR

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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk