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Payday Loans

Choosing Alternative Options to a Payday Loan

A payday loan is a short term loan where you can borrow a few hundred pounds to pay back when you next get paid. In principle it sounds like a good way to get some emergency cash to keep you going until your next pay day. However, it can be an expensive way to borrow and if you do not manage to pay it back on time, the fees and charges can be very high. These loans tend to be regulated now in most countries, but they can still be more expensive than some alternative options.

Before you take out a payday loan, it is therefore wise to consider whether you have alternative options that could be better. There could be cheaper ways to borrow the money or ways to avoid borrowing at all.

To start with you should decide whether you really need the money. As payday loans were set up to help with emergencies, such as bills that need to be paid or to afford food for the rest of the month, it is easy to assume that this is the sort of thing the loan will be used for. However, you need to consider whether what you need the money for is an emergency or whether it will wait. If you need to pay a bill, then it can be worth checking with the company whether they can wait until you get paid for you to pay it. If you need food, see whether there is anything you can make from your freezer and store cupboard first.

If you have any savings then never borrow money. It is so much cheaper to use your savings than to borrow. You may be saving towards something or like the feeling of having some savings behind you but you will find that it is much more expensive to borrow money than to use your savings to pay for things.

If you really need the money and have no savings then you need to see whether there are cheaper ways to borrow money. You may find that there are quite a few options out there that you could consider. If you work, then you employer may give you an advance on your salary. They may be able to give you bit of money to keep you going until payday. Many large firms are open to this idea and it is worth asking whether it is something you can do. You could borrow from friends and family. Work it out carefully with them, have a written agreement with regards to a repayment plan and make sure that you are both completely happy before you go ahead with it.

If you already have a credit card or authorised overdraft then you may be able to use those instead. If they are already maxed out then speak to the lender and see whether they can extend them. Do be careful though as you will need to pay them back and they can be expensive ways to borrow as well. Work hard to pay them back as quickly as possible, with a credit card, in full if you can so that you do not pay so many fees and so much interest.

If you do not have a means of borrowing like this, then it can be worth applying. Speak to your bank and see whether they can organise anything. You may think that there is no chance that they can help you, but until you have asked them, you will never know. Be careful though, you should only take on a credit card or overdraft if you are confident that you will be able to manage the repayments. A credit card can sometimes make the situation worse. Make sure that you pay the balance off in full at the end of each month and that you keep track of what you are using it for so that you are confident you have enough money to repay it. An overdraft is more expensive and so make sure that you only use it in emergencies as you will start paying charges as soon as you borrow, unlike the credit card when you have until the end of the month to repay.

It is possible to borrow money from a credit union, local welfare assistance scheme or get an interest free loan form a social fund. These may depend on what benefits you get and what is available in your local area. It can be worth finding out about these, by speaking to your local citizens advice bureau.

It is possible to get free advice with regards to financial matters. Look online to find a number and you can discuss your problems with someone who will be able to make you aware of everything that you could possibly do to help. There are many debt management companies out there which may be able to help you, some charge, but there are free ones so look out for them.

Advice

What to do if you are Refused a Loan

If you have a loan application refused it can be tempting to just try applying or another one elsewhere. However, this is not a sensible thing to do because if you keep applying it can have a negative impact on your credit record, particularly if you keep being refused. It can also take a lot of time to apply and you could be wasting it. It is worth trying a few alternative things first.

To start with you need to think about whether you really need the loan. If you have savings, then you should use those instead of borrowing money as it is a much cheaper option. It can be difficult to think that you will not have any money to fall back on, but it is a much more sensible option to spend this than to take out a loan, due to the cost. If you have been refused a loan, it could be your only option as well.

Think about what you are getting the loan for and whether it is something that you need immediately or can wait for. If it is not urgent, then it will be better to save up the money rather than borrow. This will keep the cost down. Obviously this will depend on the cost of the item as it is not urgent to buy a home, but you will be unlikely to be able to save up enough to cover the cost of a house if you are paying rent as well, so taking a mortgage is a better option. If you need a car to get to work then buying one could be sensible as you will be able to hold down your job and therefore secure an income which is likely to be worth more than the cost of the loan repayments. If the item you are borrowing for is not needed immediately, then consider waiting a while. You could save some money each month, perhaps the equivalent of what you would have been paying in loan repayments and buy it without having to go into debt.

It is worth considering whether you will be able to afford loan repayments if you are going to reapply for a loan. Work out how much you will have to repay each month and think about whether that is something you can afford. Consider whether you will be able to easily afford it or whether it will be a struggle as well. If you might struggle, then it could be worth looking for an alternative. Remember that interest rates could rise and this might mean that you repayments will be even higher and other bills and costs could go up as well. Your income may not go up in line with this and therefore you will need to make sure that you will still be able to manage in this situation.

Another thing to check when you are refused a loan is your credit record. You may find that you have some mistakes on your credit record which are holding you back in your application. It is worth taking a look at it, which can be done for free and making sure that everything is correct. It is possible that there are incorrect items on there, perhaps debts listed as outstanding which have been paid off. You may find records of debts which you have forgotten to pay which you may be able to settle in order to improve your credit record. There may be debts that you are aware of having, which may also need to be settled in order to improve things. Perhaps concentrating on paying these off before you borrow more money may be wise and may help your credit rating as well.

It can also be wise to ask the company why they refused you the loan. Find out what the reason was behind it as you may find that it is based on something which is incorrect and you can talk them round. It is more likely to be to do with your credit record, but if you can find out exactly what the reason is, then you will be much more likely to be able to rectify the problem.

It is easy to think that if you are refused a loan then the simple solution is just to apply for another one. However, this can actually make things worse and so it is worth looking through the tips listed above first and finding out whether there is an alternative to the loan and whether you can do anything to make future applications more likely to be accepted. It will take some time and effort but could pay off in the long term by helping you to have a better financial future and a less costly one as well.

Advice

Why open Ended Loans can be Dangerous for Borrowers

There are many different types of loans and they can be categorised in many different ways. Open ended loans are those which have no repayment limit, compared with closed ended loans which have a repayment date. Examples of open ended loans would be credit cards and overdrafts.

With these types of loans there is no agreed repayment schedule, amount or end date. It means that it is up to the borrower to choose when they make repayments and how much they pay. With some types, such as credit cards, there is a small minimum monthly requirement but this will usually only be enough to cover the costs of the loan and will not repay any or very much of the outstanding debt.

These types of loans can be very attractive to many people because they can borrow money for a long period of time without having to worry about repaying it. They may think that they will just pay it back when they can afford it and then never get around to it. It can almost feel like it is free money and that they are able to spend it without worrying about paying it back. Some borrowers even think that the money on the credit card is there to be spent and then do not think about how they are going to repay it.

Although having easy access to money like this can be very useful, it can also be a big problem. If you keep using the money, without thinking about what you are buying with it or the cost, you could end up in a situation where you owe a lot of money. This could have all sorts of consequences in the future.

If you keep borrowing money, then you will get to a point where no one will lend you anymore. This will be because your credit record will have a reference to what you have borrowed and lenders will worry that you will not be able to make the necessary repayments. This means that if money is needed in an emergency; there will not be any money left to be able to borrow. It also means that if money is needed for a loan such as a car loan or mortgage, then the borrower’s credit record may be so bad that they will not be able to get these. A bad credit record can also affect other things as well as borrowing. It can make it harder to rent a property or even to get a job. It will certainly make it much harder to borrow money, not just in the short term but also in the long term.

The money will also need to be paid back eventually. This could become harder as more time passes. Not just because the debt may increase but also because financial commitments could increase over time. It may be that you have children, need a bigger home, lose your job, need to support other family members or other circumstances which limit your finances and this could mean that finding money to repay the debt could get harder. Of course, things may get easier, perhaps a pay rise, children leaving home, inheritance or other increases in income, but it is best to assume that things will get harder not easier, so that you can plan sensibly for the future.

It is also worth calculating how much the items purchased with these loans would actually cost once it is paid off. If you include the interest charges plus any other fees then it could mean that they cost far more than you would normally be prepared to pay for them. You may find that by the time you start thinking about paying off the debt, you cannot even remember what you bought with the money or it may be gone or broken. It can feel really nasty paying back money when you cannot even remember what you used it for, particularly if it is a lot. If you cannot remember the fun that you had spending it or even find anything that you think you used the money for, it can feel even worse.

So when you are considering getting a credit card, store card, overdraft or any other sort of open ended loan; it is worth thinking hard about your decision. You should make sure that you think hard about what you are using it for and whether it is something that you think is worthwhile. Consider how much extra it will cost using this way of borrowing and have a repayment plan. Look at other borrowing options and weigh up the pros and cons and then you will be able to make a well thought out decision about the loan and know that you are justified in taking it out.