Payday loans are a type of loan you can obtain where the lender will provide you with money upfront that you can repay when you get your next pay cheque. If you are in debt or in desperate need of money, this may sound like the perfect solution to your financial problem. However, you should beware because obtaining a payday loan can be a costly mistake that can leave you in more financial trouble then you were before you got a loan. Below is a look at the dangers of Payday loans and several safe loan alternatives.
Dangers of Payday Loans
Payday loans typically look like a great option, until you read the small print. These loans almost always come with a lot of added fees and a high interest rate. This means that you will be repaying substantially more money back than you borrowed. Chances are that if you were in desperate need of extra money in the first place, you are going to have a difficult time paying even more money back.
In addition, part of your loan agreement may be to give the payday loan company the right to automatically withdraw your repayments from your bank account on the day you are paid. This will force you to make your payment whether you have the extra money to do so or not. If you do not have the necessary funds in your bank account, you may be charged a late fee from the payday loan company and overdraft fees from your bank. This only adds to your overall debt.
Do not be fooled into thinking that you do not have any safe alternatives for getting help with your finances. There are several things you can do to avoid obtaining a loan, and still successfully work through your financial crisis. Below is a look at several steps you should take before considering any type of loan.
- Make Arrangements for Payment. If you need to borrow money to pay of a certain debt, try contacting the company you owe money to directly. Before you call them, know exactly how much money you can pay and when you can pay it. You will be surprised by how many companies are willing to work with you if you contact them first.
- Talk to Your Employer. Depending on your employer, they may be willing to give you an advance on your next pay cheque. While this is not the best solution because it can still put you behind in the upcoming weeks, it is better than taking out a payday loan. Make sure you ask if there are any fees or interest charges applied to your advance before making the decision to borrow from your employer.
- Contact Local Charities. If you are in a financial emergency that cannot wait, you may want to contact several local charities to see if they can help. The may be able to provide you with some financial assistance to help lower that amount of out-of-pocket expenses you still owe.
Depending on your situation, you may be able to receive some additional help from the government. They offer several types of loans to help people who are going through a financial emergency. Below is a look at the top three types of governmental loans.
- Budgeting Loans. The government offers Budgeting Loans to people who are currently receiving benefits from the government, such as Income Support, Jobseeker’s Allowance, and State Pension Credit. You can borrow up to £1500 with no interest, and you can repay it slowly over the course of several months.
- Crisis Loans. A Crisis Loan is specifically for those people who are facing an emergency situation or who have just went through a natural disaster. Loan amounts depend on your specific situation and you do not need to be receiving government benefits to be eligible.
- Community Care Grants. These grants are specifically for those people who need financial support in order to live independently versus going to an assisted living facility. These loans can help make necessary renovation to your current home or help you move to a new home.
It is always best to look at all of your options before making any final decisions. Keep in mind that while a payday loan may sound good at first, it will leave you worse off financially than you were before you took out the loan. It is for this reason that any type of payday loan should be avoided at all costs. Always look for safer alternatives to help you through your financial crisis.