The short answer to that question is ‘it depends.’ There are some ways that payday advance lending is useful, believe it or not, but it’s not necessarily your best option when it comes to keeping the cost of your lending down, as payday loans are far from perfect when it comes to someone who has a need for long term credit.
short and sweet
Payday loans are an excellent resource for anyone who is facing a legitimate financial emergency because of how easy it is to get the funding you need in a hurry. If you’ve encountered a sudden expense that you just simply can’t afford right now because you’re still two weeks away from your next paycheque, you don’t necessarily have the time to go to a traditional lender in order to navigate the slow channels to a personal loan from a bank or building society.
The other good thing about payday lending is that many lenders specialise in no credit check payday loans, which means that if you do encounter a financial emergency but lack the requisite good credit to get a loan from a traditional source, you’re not completely out of luck. Instead you can go to a payday lender that does not require a credit check before agreeing to a loan – and with high street lenders tightening the reins on all forms of lending, many times this leaves anyone with less than perfect credit no choice but to use a payday lender.
However, there are plenty of downsides to payday lending that you simply must know about before taking out a loan from one of these companies. First and foremost is that you pay for the convenience of same-day lending that requires no credit check.
Payday lenders are notorious for charging incredibly high interest rates in comparison to a high street lender. In the short term, these interest rates aren’t altogether too crippling, considering how the average cost of a payday loan is around £25 in interest for every £100 borrowed, but these interest rates compound quickly if you miss your repayment deadline – and once you do that, you’ve also got to contend with very high late fees as well, which has led many Brits to begin suffering from swiftly-mounting unmanageable levels of debt.
There is a better way
If you’ve got an emergency and you need cash immediately – and you simply can’t get an alternative to a payday lender on such short notice – by all means go ahead, but make sure you repay the loan in full and without running the risk of a late repayment. However, if you’ve got time before you need some credit, consider going to your closest credit union and becoming a member instead.
Credit unions have much more relaxed lending criteria for members, provided you can prove yourself by making regular deposits into a savings account. These deposits don’t have to be much – sometimes just a few pounds a month – but this proves to the credit union that you’re a good risk, which will unlock the doors to the vault so to speak.
The interest rates on credit union-funded loans are much, much more attractive than both payday lenders and the majority of high street lenders such as banks and building societies. This means that, if you have the time to prepare for a financial need, credit unions are undoubtedly the best choice when it comes to consumer credit.