So often do we find ourselves at the end of the month with vital expenses to pay for, but with no cash available until payday. Perhaps you had an emergency expense or unexpected cost such as car repairs, medical bill or family funeral.
Over 2 million Britons will tell to payday loans each year as a fast solution but that comes at a high cost. However, we wish to recommend some of the main alternatives that could be equally effective and save you money.
What is a Payday Loan?
A payday loan is a short-term, unsecured loan that is issued to you ahead of your next pay date from work, and is expected to be repaid at least in part when you are next paid.
Because payday loans are quickly administered and are not large enough to warrant being secured against your house or your car, they often involve steep interest rates.
If you are in a poor financial situation, high-interest rates on a payday loan and strict repayment policies may not be right for you. If you have to go this route, we recommend you compare payday loans to at least getting the most affordable rate possible. Otherwise, here are some viable alternatives.
Guarantor loans involve having someone to sign your loans agreement, stating that should you default on your repayments, the outstanding amount can come from their finances. Often times, guarantor loan providers can offer more competitive interest rates than lenders who offer products that are not secured by a guarantor or an asset.
A further benefit of getting out a guarantor loan is that you are usually able to borrow a larger amount of money than if you were getting out a small payday loan and spread the repayment over a longer period, with the minimum loan term being 12 months.
Get a Flexible Loan
Flexible loans are created to give you more flexibility when repaying your loan. If strict, equally-weighted monthly repayments are not suitable to you, then a flexible loan may allow you to decide how much you repay each month, if agreed in advance with your lender.
Features of flexible loans such as online overdrafts and instalment loans may also include the option to repay your loan early, with no early repayment fee.
This means that you do not necessarily have to repay your loan on payday – perhaps you have another source of income, such as child support payments, which will enable you to make your repayments on a certain date.
Borrow from Friends or Family
When deciding to borrow from a lender, you are involving yourself in a legally-binding process. The consequences of defaulting on your repayments can be serious such as added fees and damage to your credit score.
If the situation is suitable, it might be better for you to enlist the help of a friend or family member to get you through to payday.
This is particularly suitable if you only need to borrow a small amount of money, perhaps to do one last food shop for the family until next month. Family members or friends don’t worry about credit scores or affordability since your word is usually more than enough.
You typically won’t repay interest and you will have flexibility to repay whenever you can.
Dip into Your Savings
If you have a savings account, it may be sensible to use a small portion of that money if you are short at the end of the month. After all, it is more important that you use your saved money to better your current livelihood than to safe for future emergencies or holidays.
You will end up saving more money if you use interest-free money that you already have, than if you borrow from a bank or lender.