Trying to decide on whether to take out a payday loan is very tricky. You will probably have herad horror stories about them and your friends and family may be telling you to avoid them as well. However, there are situations when they can be a better alternative. It is important though to look at your situation carefully when making your decision.
Do I really need the money?
You need to start by identifying why you need the money. Think about what you will be spending it on and whether it is really necessary. This is a very personal thing as items that are necessary for some people are not for others, so only you will know yourself whether this is the case. If you can go without then you will save a lot of money due to the cost of the loan. Payday loans are designed for emergency use and so you need to think about whether you do need the money in an emergency or not.
Think about what might happen if you do not have the loan and whether you will be able to cope. If you need the money to pay a bill, phone the company and see if they can let you off until you get paid. If you need it to pay for a car repair think about whether you can delay that and use public transport or get a lift with a friend or colleague instead. If you need to buy a new fridge because yours has broken down then see whether there are any interest free deals available (which may or may not work out cheaper) or whether you can afford one if you get it second hand. There might be alternatives that you may not have considered with regards to whether you need the money.
What alternatives to a payday loan are there?
Assuming that you have decided that you do need the money, it is important to think about the alternatives. For example, if you have any savings you will be better off using those as they will be cheaper to use than a loan. If you can wait for a while before buying the item you need, then you might be able to save up some money and that would also be cheaper.
If you cannot wait to save or have no savings then a loan could be your only option. There are many loans available though and so you need to take a look at them all and think about which one is best suited to you. If you have a poor credit record then you may think the payday loan is your only option but it could be worth investigating other options too. If you need the money quickly, a payday loan will also suit you, but there may still be other loans that will get you money quickly. Do spend some time doing research though as you may be surprised at what you might find.
Once you decide on a loan type you will need to compare lenders. It is worth looking at their costs as they will vary and you do not want to pay more than you have to. However, cost is not the only thing you should be considering. The reputation of the lender might be important to you as well as their level of customer service but it is worth also making sure that you can afford the repayments.
Can I afford to repay?
With a payday loan you will often be expected to repay the whole loan and the interest in one lump sum. This is set up by a direct debit which comes out on the day that you are paid. This should help you to both remember to pay and have the money available but you still need to be wary. It is really important to make sure you repay it or else you will get charged extra.
As well as being able to pay for this, you also need to be able to afford the rest of your bills during the month. This could be tricky and could end up in you needing another loan to get you through. Therefore, you need a plan to make sure that you will be able to afford everything you need to pay for and the loan repayment. Cutting back on spending on unnecessary purchases might be enough, but for some people they may have to think about ways of earning more money as well. It is well worth getting a plan together before taking out the loan and then you will know whether the loan is a good idea for you or not.
There are a lot of things to consider and it is really important that you do. Rushing into a loan in a panic is a mistake that many people make. You need to try to calmly look at your options and make sure that you are well prepared for whatever decision you make and the consequences of that decision.