No matter how well you budget or how much time you dedicate to managing your financial affairs, you can’t foresee everything. We have all experienced a situation where we think our finances are doing well, but then we’re hit with an unexpected bill or need for funds. Suddenly all of our careful planning unravels before our eyes.
When these unexpected expenses occur, the need to find funds to “plug the gap” — so to speak — is vital. For some of us, plugging the gap may mean asking friends or family for financial assistance. Alternatively, some people will extend their overdraft or use their credit card to meet their costs. However, for some people, those options aren’t available. They have no one to borrow from and their credit score isn’t good enough for them to be able to borrow in a conventional way. If these circumstances apply, their only way of plugging the gap is to consider a payday loan.
Mitigating the concerns of payday loan borrowers
If you find yourself having to contemplate a payday loan, you’ll probably feel more than a little concerned about the process. Over recent years, we have all seen stories in the media about the dangers of payday loans. Having to contemplate taking one out may worry you.
However, it’s important to remember that payday loans are there to serve a need, and, if used correctly, can help to manage a gap in your monthly finances. When it comes to using payday loans responsibly, the key factor you need to keep in mind is knowledge. The more you know about payday loans and the problems they can create, the more you’ll be able to avoid these issues. In an effort to help you do just that, consider these realities about taking out a bad credit payday loan…
#1 – It’s only a short-term fix
It’s important to recognise the fact that payday loans are not going to be able to transform your finances long-term. They are only a short-term fix that can help tide you over for a few weeks. Borrowers tend to run into trouble when they see payday loans as long-term options or solutions, so avoid this at all costs.
#2 – It’s easy to overlook the terms and conditions
If you’re in a rush to meet a vital expense, it’s incredibly easy to overlook the terms and conditions of a loan. Always take the time to be sure you know exactly what you are liable for, especially in terms of repayment terms, interest rates, and fees. Ten minutes spent studying documentation can make a big difference to your ability to pay back the loan on time.
#3 – You’re going to have to repay the loan from the next wage
If you are facing a consistent budget shortfall, a payday loan is not going to help. Yes, it might help this month, but what happens next month? Your budget is already tight, and having to pay back the payday loan will tighten it even further. Always keep this simple fact in mind when looking into payday loans, and prepare to budget accordingly for the next month.
#4 – Applying will leave a mark on your credit file
Payday loans are most often used by people with poor credit histories. If this applies to you, then it’s important to remember that the application is going to leave a mark on your credit file. This mark may adversely affect your ability to gain credit in future.
#5 – The interest rates are usually extremely high
Payday loan interest rates are usually so high that you may end up paying back more than you initially borrowed to begin with. This is why it’s so important to ensure that you choose the right payday loan company for your circumstances. You need to keep your borrowing as affordable as possible. Don’t forget: you can compare different lenders right here at Bonsai Finance.
#6 – You may fall foul of a bad payday loan company
Payday loan companies can be very good, or they can be very bad and bordering on predatory. It’s vital that you do your research about a company before committing. Look for former customer reviews for lenders online. Additionally, research all your different lender options here on Bonsai Finance.
#7 – Payday loans don’t replace the need for effective budgeting
Payday loans should only be used to bridge an unexpected gap in your finances. It is highly dangerous to your future financial health to see payday loans as part of your normal budget. They should not be seen as an option under normal circumstances. It’s best to only consider these products in cases of genuine emergencies or unforeseen expenses.
#8 – You will be charged fees if you’re unable to repay your payday loan in time
If you cannot repay your loan on the agreed date, then this will have substantial financial repercussions. You will usually be charged fees on top of the existing interest, and you may even be subject to debt collection efforts. These issues are largely avoidable if you carefully plan and strategise how you will repay. However, you still need to be aware of the potential consequences should your planning fall short.
#9 – Payday loans are usually for smaller amounts
If you need to cover a large expense — for example, anything over £1,000 as a general rule — then a payday loan is unlikely to be a suitable option for you. If you need to borrow more, a long-term bad credit loan may be be preferable.
#10 – You may fall into a repetitive cycle of borrowing
If used as part of your budget rather than a way of covering a one-off expense, payday loans can cause you to fall into a repetitive cycle of budgeting.
- You’re short on cash in January, so you take out a payday loan with the intention of paying it off in February.
- However, in February, you realise that paying off January’s loan is going to leave you short on money for February.
- So you have to take out another loan to cover February’s costs, which you will pay off in March.
- However, in March, you realise that paying off February’s loan is going to leave you short of money for March… and you can see how it cycles.
It’s important to know this can happen. It shouldn’t, if you are careful with your budget, but it’s vital that you’re aware of the potential for such a pitfall.
Now that you know how payday loans can go wrong, you can ensure that you don’t fall subject to the same problems. Keep the above in mind when applying for and using payday loans. That way, you should be able to balance the potential risks and manage the process as well as possible.