When facing a financial crisis, many people turn to personal loans to supplement their current income and make ends meet.
While these loans need to be repaid eventually, they provide immediate access to a certain amount of money that can be very helpful in financial emergencies. However, these loans are not just a favour. In addition to the original amount, they also require you to pay an added amount called interest.
Whilst we’re pretty sure that you already know this. What you may not know is that there are a number of different types of loans that may or may not be suitable for you based on your financial situation.
When it comes to making ends meet, Payday loans are one of the most common types of loans, however, they also come with strings attached. If you’re borrowing money for the wrong reasons, it could result in serious financial problems.
As such, before you jump into applying for payday loans, you need to first pause, thoroughly consider your financial situation and understand the potential consequences.
Although these loans may be helpful in a bind, they also require proper management and responsibility. To help you make the right decision, we have gathered five important questions to ask yourself before taking out a payday loan.
1) Have You Exhausted All Other Options?
Payday loans with high-interest rates are not suitable for everyone. If you require funds, there are many options available aside from payday loans.
In some cases, friends or family members may be willing to lend you money with minimal interest. You could also try to find lower-interest loans from various lenders. For example, credit unions, lending circles or your networks.
If you are looking for a payday loan, you probably need the funds immediately. In these situations, make sure you eliminate alternate funding sources, especially if you’re already in debt.
We suggest that you first explore cheaper options prior to applying for a payday loan online. These payday loan alternatives will help you avoid a debt cycle and mitigate financial worries.
However, if you are struggling to find an alternative and urgently need funds, make sure you get in touch with a trusted payday lender.
2) Can You Afford a Payday Loan?
Just like with other forms of credit, there are extra costs associated with payday loans. These costs are in the form of interest rates, fees and other charges. Together they determine the total cost of the loan. Yet many people fail to look beyond the interest rates.
When calculating the cost of your loan, you need to look at the APR to get a rough idea of the cost. This allows you to judge if you’re able to afford the loan before beginning the process.
Analysing your affordability is essential because payday loans are short-term loans. This generally means that you don’t have long to pay back what you owe, often only 30 days or less. As such, evaluating if you will be able to make the necessary payments by the due date is a crucial step.
Moreover, since they are easier to access, payday loans for bad credit charge higher interest rates. As a result, missing payments could not only damage your credit score but also further increase your debt. That’s why, before you agree to any loan, you have to ensure that you know when and how to pay it back.
3) Have You Read Through The Terms Carefully?
Before applying for a payday loan, you need to be aware of the terms and conditions involved. A good lender would be transparent and clearly outline the requirements alongside the repayment plan, interest rate and additional fees.
No matter how desperately you require the money, you need to read the terms of your payday loan and agreement carefully. If you do not understand something, ask questions until all your doubts are clarified.
It’s only after you clearly understand and agree with the terms and conditions involved that you sign and send in your application. This allows you to spot any red flags and protects you from predatory lending practices.
4) Are You Borrowing From a Reputable Lender?
Rather than getting comfortable with the first lender you find, make sure you research at least 5 other lenders.
When borrowing money, you will be handing over your personal information to these lenders or lending companies. As such, you have to be able to trust that they do not pose a threat to you or your finances.
A good rule of thumb is to select a reputable FCA-approved lender, whose loan offers some flexibility. Additionally, you could also check online reviews or look up customer testimonials to confirm their authenticity.
5) Do You Understand The Risks Of a Payday Loan?
It’s no doubt taking out payday loans comes with a bit of risk. As they are relatively easy to access, they also incur higher interest and shorter payment periods. If mismanaged, this setup could easily backfire on you.
If you miss a payment, your debt will increase. Moreover, some payday lenders could be aggressive in their pursuit of missed or late payments.
For these reasons, you have to be certain that a payday loan is what you want and your best option. Once you are certain that you can properly manage your finances, taking out a payday loan could be a beneficial decision.
Choose Salad Money For Fair And Affordable Loans
If you require funds and are thinking about applying for a payday loan, you have to ask yourself certain questions to clearly understand what you’re getting into.
It is only after doing so that you will be able to make the decision that’s right for you and your circumstances. However, if you do find that a payday loan is your last resort, you can rest assured that Salad Money is here to help.
As one of the leading FCA-regulated and approved lenders in the UK, we offer fair personal loans for employees with poor credit.
We believe that having a poor credit score shouldn’t hinder your ability to borrow when in need. That’s why we use an open-banking-based assessment system to make our loans accessible to all employees, regardless of their credit score.
To apply for our More Than Your Score loans, click here and for more articles like this one, visit our blog page now!
