Payday loan checklist: is borrowing the right option for you?

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The UK payday loans, or Short Term Loan, the industry struggled with a mixed reputation for the first half of this decade. But, since FCA regulations were announced in 2014, short-term loans have found their place as a useful option for people in need of a quick, small cash injection to smooth the inevitable bumps of life. Over the same period, however, all forms of lending have seen a general rise in popularity, with 2017 Office of National Statistics (ONS) figures revealing average UK household debt to be around £13,000 – a national record.

Though there are many reasons for this, including political uncertainty and the global economy, it’s clear that loans are a vital resource for modern Britons. So, is a payday or short-term loan the right option for you? Given the wealth of choices available on the market today, the answer depends on a number of factors, and it’s important to ask yourself a few questions before making the call.

payday loan

How quickly do you need the money?

With the average UK household spending around £529 per week, it’s easy to see how borrowing is on the up. The first question to ask when looking at loan options is ‘how quickly do I need the money?’. Short term loans are, as the name suggests, intended as short-term options to tide you over until your next salary or wage payment. If you can afford to wait a few weeks, a loan from your bank might be a better option, with lower interest rates, less stringent repayment terms, and the ability to spread repayments over a longer period.

How much do you want to borrow?

The amount you require also makes a difference here. Bank loans are an excellent solution for larger amounts but can be harder to arrange for small, everyday sums. This is mainly due to the relatively low-interest rates banks charge; for loans to be worth their while, they have to be for significant amounts. For a smaller loan, credit unions can be a good alternative to payday loans, and if you have time to shop around, you can find one that’s perfectly suited to your needs.

Can you borrow from friends or family?

Of course, sometimes you really do just need a quick lump sum to cover an emergency. In that case, it’s always worth checking with family or friends to see if someone can lend you the money. The downside is the strain it can put on your personal relationship with the lender, but this can be avoided by following a few responsible borrowing principles before any money changes hands. With this in mind, the Money Advice Service suggests that you and the person lending you money make sure to put your arrangement in writing, agree when and how you’ll pay the money back, and talk about what will happen if you’re unable to pay the money back as agreed. These simple steps will make the arrangement more formal, and help to avoid any awkwardness caused by miscommunication.

Have you checked your credit rating?

What’s more, it’s not only those with future mortgage plans who need to give taking out a payday loan with bad credit a bit of thought. Most of the above loan and credit options rely on a good credit report at the point of application; those with a poor score may well find themselves only offered bank accounts with no overdraft facility, refused credit cards, and denied larger or longer-term loans. In this position, payday loans are worth considering, as many payday lenders don’t discriminate on the grounds of previous bad credit scores, though a credit check will still be required.

Payday loan risk factors

If you decide that a payday or short-term loan is the right option for you, make sure you’re aware of the key risk factors. You should only borrow as much as you need, and resist the urge to take a loan for non-urgent purchases that you could just save for the traditional way. In fact, you can check out some top tips on saving from real people here.  Make sure you have a clear plan for your repayments, and that you know how much and how often they will be. Finally, shop around to find the best deal based on how much you want to borrow, how much you can afford to pay back, and how quickly you can pay it back.

There’s no single right answer to any financial difficulty, and a payday loan could offer a valuable lifeline in difficult circumstances – just make sure you’ve considered your options and weighed up all the pros and cons first.

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