What are Payday Loans?
Payday loans are small loans that people borrow mostly for emergency use. You can borrow up to £1,000 from a direct lender with a payday loan. These loans come with a high-interest rate and a short repayment term, usually 15 to 30 days only. A payday lender may charge a loan origination fee upfront.
You may come across different names of a payday loan such as cash advance, deferred deposit or check advance loan. The payday lender gets the security of repayment by accepting your next paycheck as collateral. You can also authorize the lender to debit your account associated with the payday loan electronically on the agreed date.
Benefits of Payday Loans
Payday loans often come with no credit check availability. Therefore, these loans suit the people who need cash for an emergency need but have a poor credit rating. Instant origination of payday loans also makes them a feasible option to get quick cash. Lenders originate payday loans in a day or so, once you have provided them with the required information.
Risks Associated with Payday Loans
Payday loans often come with an interest rate of over 30%. You may have to pay interest on some payday loans at a rate higher than 50%. A small loan amount, short repayment term, higher interest rate, and origination fee make them a very risky and expensive option. Therefore, a payday loan can solve your emergency cash problem but never be a long-term credit solution.
How to Make Payments More Affordable
A payday loan can trap you in a continuous debt cycle if you fail to repay it in time. You can get out of this debt trap by rethinking your financial policy. Here are some useful tips to make your payday loan payments more affordable.
1) Balance Your Monthly Budget
You can never make your monthly payments affordable without balancing your budget. Therefore, you should maintain a balance between your monthly income and expenses to keep your payments consistent. List your regular monthly expenses such as loan repayments, utility bills, and recreation spending.
Do not forget to account for big, annual expenses like a holiday trip or professional license renewal. These expenses come due only once a year but could disturb your budget badly. A balanced budget helps you to manage your monthly payments in a better way and repay your payday loan in time.
2) Look for New Income Resources
You should rethink your finances critically if you are keen to make your monthly payments more affordable. Keep looking for new income resources and grow your bank account balance. You can do this by working part-time or investing in some profitable business.
You can also look for some online resources to get a new stream of income. Many online platforms allow you to cash your skills by getting freelance projects. These remote jobs can boost your earnings and help you to keep your monthly payments consistent. You may avoid getting a payday loan altogether if your income resources are getting better every month.
3) Consult a Credit Counselling Agency
Sometimes, it is better to consult an expert who can help you get out of a financial crisis. Many agencies offer credit counseling services in the UK. These agencies review your financial situation and make an effective plan to manage your payments. This plan helps you to get rid of the debt cycle created by payday loans.