Financial emergencies can affect all of us at some point in our lives. In the present employment climate in the UK, where many people are now in precarious employment and zero hours contracts are common, financial emergencies can hit hard and fast. You might find your employer suddenly cutting your hours for a month, or your car breaking down. If you have children, they might need items like new coats or shoes at short notice.
What are payday loans?
If you need short-term cash, then one option is to take out a payday loan. These are short-term loans that you can receive very quickly, without having to complete the paperwork associated with more conventional types of lending. This means that the money can reach your bank account swiftly, within minutes in many cases. This allows you to pay off the emergency bills or make the purchases you need to get your life back on track.
They also provide an option if you are desperate and there are no other options open to you. This might be because family and friends can’t help, or you are simply out of other options.
What are the disadvantages?
The main disadvantage of loans of this type is, of course, the interest that you have to pay. Typical APR on a payday loan is 1293 percent, which is massive. This means that you can end up repaying twice the amount that you have borrowed, especially if you have to repay the loan over a number of months.
That interest rate becomes even larger if you miss payments for any reason. This might mean that you need to extend the period of the loan repayments, which leads to more expense. There could also be penalties applied for late payments, adding even more to the cost of the loan. This means that you can end up trapped in a vicious cycle of missed payments and penalty interest rates which can be almost impossible to escape from.
In conclusion, payday loans can provide short-term solutions to immediate problems, but you need to treat them with caution. Please seek advice first from an organisation such as the Citizens Advice. If you sign up for a payday loan, you need to accept the often eye-watering high interest rates, and that you will be paying back much more money than the amount you borrowed. If there is no alternative, though, and you need short-term cash quickly due to an emergency, they could dig you out of a hole.
Written by Zack Wilson
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