It is hard to understand why payday loans receive so much bad press in certain quarters in the UK. There can be no disputing the fact that companies which offer payday loans are providing a vital service. By the same token, people who use payday loans the right way will definitely benefit from these loans.
The key to understanding how payday loans work is to concentrate on the word "payday". The payday loan is a short term loan and it is usually meant for people who have an emergency which cannot wait till the next payday. The point here is that if you have no payday to look forward to, do not take this loan.
Advantages of payday loans
This loan has many advantages. It is easy to get. You do not need collateral to get this loan. This loan can help you pay an urgent bill. It can also help you avoid embarrassment. To enjoy this loan, you need to obey the rules. The first rule is that you can take out this loan only when you have an emergency. Again, you should take this loan for low amounts of money. Most people who take this loan apply for between 100 and 900 pounds. This makes sense because it is easy to pay off relatively low amounts of money. Another important rule is that you should repay the money immediately you receive your next salary.
A payday loan is not a long term loan so do not convert it to one. For best results, you should take this loan only when you are expecting some money which you cannot access at the moment. This implies that as soon as you get the cash you are expecting, you pay off the payday loan. This is important because the interest on payday loans can be quite high. If you do not pay off the loan at the right time, the interest will add up to a huge figure and paying off the loan at this point will be very difficult.
Possible drawbacks of payday loans
On its own, the payday loan is a great idea. Unfortunately, people can misuse this loan and when they do, they turn around to blame the payday loan for their financial woes. The basic problem here is that the annual percentage rate (APR) on these loans can be quite high. If you take the typical £100 payday loan, you will need to pay back £125 at 25% per month. If you do not pay off the loan at the right time, you will pay through your nose eventually. The reason is that compounding will make the figure terribly high. Another problem with this loan is that it can lead to addiction. The loan is so easy to get that there are people who get into the vicious cycle of taking and repaying payday loans.
As stated already, payday loans have great advantages. These loans also have some drawbacks too. The key to success is to take these loans only during an emergency and repay the loans at the right time.