Ways to Avoid a Payday Loan

When applying for most bridging loans, the provider will run a credit check on your account. This involves accessing real-time data on your credit report, giving the lender an insight into other credit products you have applied for, are using and amount of debt that you owe. Whilst having a mortgage and credit card accounts is very normal, having a payday loan is something that may turn the lender off you and decline your application.

These are high-cost examples of short term credit and used by individuals typically in emergency situations. Bridging lenders therefore see individuals using them as a last resort and financially stretched, therefore they should not be taking out a secured loan or an additional mortgage as this could create further debt. Especially for those that live in the residence as the premise of having your home repossessed is certainly a worst case scenario.

If you apply for an unregulated lender like MT Finance or Regentsmead they may not carry out credit checks at all, preferring to assess the value of your property in question and the opportunity. However, affordability also plays a role so being free of debt and payday loans is advisable.

What is a payday loan?

A payday loan is also known as a short-term loan.  The cost of borrowing money is usually significantly higher than say, a credit card or increasing the credit on an arranged overdraft due to the interest rates on short-term loans bad credit. These interest rates are so high that even if you are able to pay back the money within the repayment period, it will still cost you considerably more to give back than you asked for. Whilst the eligibility criteria for these loans tend to be less stringent, (for example, if you have been turned down for a credit card as a result of a bad credit score, you still have a good chance of being accepted) and therefore the money is easier to access,  these costs can get completely out of control if you end up struggling to pay back this loan. As a result, taking out payday loans should be really be used in emergencies only.

What should I consider before using payday loans?

payday-loans

You should consider very carefully if taking out a payday loan is the right decision for you.

 

Taking out a payday loan should be seen as a last resort for most people. Why? as previously mentioned, you can end up in spiralling debt pretty quickly, and you could end up finding your credit score being affected. That is even if you pay the short-term loan back on time!

If you are seriously considering getting a short-term loan and it is for one of the reasons below, we believe that it would probably not be the right solution for you.

These include:

  • Using a short-term loan to pay mortgage or rent.
  • For household bills
  • You intend to use this loan to pay off other debts.
  • The money will be used for unnecessary expenditures such as going out, luxury food, or new clothes.

Getting a payday loan may also not be the right decision for you if:

  • You have another payday loan outstanding.
  • You don’t know how you will pay the money back within the repayment schedule.
  • You aren’t sure where you would be able to find the money to pay back the short-term loan at all.

Alternatives to high cost loans

payday-loans-credit-card

Using an existing credit card may be a better option worth considering over taking out a payday loan.

Using a credit card may be a better alternative to a payday loan and as a longer-term solution. However, be sure to only spend as much as you can afford to repay, otherwise, this can end up a costly affair when it comes to repayments.

Borrowing from family or friends

friends-family-payday

It may make you feel uncomfortable asking, but it may end up being a better choice.

Your pride may take a hit, and it is most likely that it is an option that you would like to avoid considering. However, it could stop you ending up in considerable debt that you may experience if you took out a payday loan.

If you did decide this alternative set up some ground rules so everyone feels comfortable with the situation. Any borrowing agreement should be put in writing. You should also speak with your family member or friend what would happen in the worst case scenario if you couldn’t pay the money back, or were late in doing so, as this could cause arguments in the future. Once you’ve made an agreement, be sure to also work out a feasible repayment plan.

Agree on an overdraft with your bank

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Don’t have a credit card? Well, you could see if your bank will agree to an extended overdraft. This is much more likely to be cheaper than getting a short-term loan. However, it is important to avoid getting into an unplanned overdraft due to penalties incurred for doing so.

Speaking with your bank over a temporary increase on your overdraft can be a way to get some money without getting into considerable debt. However, make sure that you don’t end up in an unplanned overdraft, as you may have to pay high fees for using one.

Can you ask for a pay advance?

If you are in employment and find yourself really struggling to get by before payday, it may be worth asking your employer for an advance on your wages. After all, if you don’t ask, you don’t get!

Similarly, if you have just started in a new job but are a recipient of benefits, you may be able to ask your Jobcentre Plus adviser for a short-term advance just to tide you over until payday, with the expectation that this will be then paid back through your earnings or benefit payments.

Where else can I get help?

If you need extra support or information about what to do next in your situation, you could contact:

  • Money advice service
  • Stepchange
  • Money for Life
  • Citizens Advice Bureau
  • FCA