Payday loans don’t have a good reputation in the finance industry or with the general public, however that hasn’t stopped them being taken out by many people. If you look at your local high street or shopping district you might even see a few payday loan lenders who have set up shop. But why are payday loans still so popular? You usually won’t see payday loan lenders mentioned on professional sites like Toploancompanies.com but to many people that doesn’t seem to matter.
Despite that fact that many professional loan comparison and information websites don’t recommend them, millions of people a year use payday loans. And for many people, it won’t be a one-time thing either. Payday loan companies also have a very strong digital presence as well, meaning people don’t even have to leave their home or make a phone call to apply for one.
Their simplicity and speed have made them very popular for people who need a loan quickly! This sort of makes sense but when you consider the drawbacks/ negatives of a payday loan doesn’t it make more sense to apply for another type of short-term loan instead?
To many people, it probably would but sometimes time really is of the essence, for things like financial emergencies a payday loan can be a pretty much-guaranteed lifeline. And I do mean guaranteed because many payday loan providers won’t take things like a bad credit score into account.
Which means for some people a payday loan can seem like their only option if they want their money quickly. When you take everything into account it’s certainly understandable why so many people use payday loans. But before you do at least consider the drawbacks first, which I’ve outlined in more detail below.
The Negatives of Payday Loans
The incredibly high-interest rates of payday loans are why they are so often vilified in the media. You could be looking at interest rates that are four figures in total! Which means paying your loan back will cost you a lot of money, interest rates are a common fixture to many loans, but payday loans take them to their extremes.
Because of this payday loans can create a cycle of debt, you might get a payday loan to pay an emergency bill like damage to your car for example. And while you might be able to clear one debt with that money, you’ll be left facing a much bigger one afterward.
Many people have also claimed that payday loan provider can be very difficult to deal with, logbook loan lenders, in particular, can have terms that heavily side in their favour. There’s also no collateral with payday loans and while this could be looked at as a positive it does mean lenders could be more ruthless when it comes to chasing up payments.
Even the supposed positives of payday loans like instant quick cash, a simple application process and the absence of things like credit checks or a need for collateral can be seen as negatives when viewed a certain way. Because it shows that the lender isn’t being overly careful about who they lend money to.
Payday loans can have their uses and I can certainly understand why people may feel like they have no other option. But before you apply for a payday loan why not read on to see if there might be a better way? Below, I’ve compiled some alternatives to consider before you apply.
A Title Loan
Title loans are rising in popularity and while they are similar to payday loans in some ways they are in general a safer alternative. Unlike a payday loan with a title loan, you will have collateral in the form of your vehicle, the amount you can borrow will also be based on the value of your vehicle as well.
While interest rates are high they are generally lower than those you’d find with a payday loan. As long as you own your vehicle, which means you hold the title you are likely to be accepted for a title loan as well.
An overdraft can be a great way to help you in a financial emergency, it gives you access to money quickly and best of all you might never need it! But in case of an emergency, you’ll have the money you need and be able to pay it back directly to your bank, which will mean better interest rates and a more professional lender. You will likely need to pass a credit check to get granted an overdraft though and a failure to repay on time could easily damage your credit rating.
Borrowing Money From Friends/ Family
Yes, no one likes asking friends or family for money do they? But depending on the amount and relationship you have with them it could be a better option than going to a payday loan provider. Of course, it will all depend on your own unique circumstances but in general friends and family will be a good option to turn to for the majority of people.
You can also set up a legal repayment plan with them if you want to prove to them that you will pay them back on time. It’s not for everyone but it’s usually always an option worth at least considering before you get a payday loan.
Selling Unwanted Possessions
You likely have plenty of money all around you just going to waste! And I don’t mean missing bits of change you’ll find under the cushions if you have old pieces of jewellery, electronics, antiques or even furniture that is not needed or you won’t miss then it could easily get you the money you need.
Selling your possessions might take a bit more time than applying for a payday loan but it will definitely be the better option in the long term.
So, that’s a look at four different alternatives to payday loans, so before you go to apply either in person or online think about what other options you have.