The very phrase ‘payday loan’ strikes fear into the hearts of many, but are they really the scary, high-interest debt they are reputed to be?
In actual fact, payday loans can be useful in certain situations. I’ve compiled a list of the five most useful circumstances in which a payday loan can help.
- Christmas. How many times have you made out your Christmas shopping list and realised you don’t have enough to cover it all? The solution: a small payday loan. With just one interest repayment you’re not going to be paying for Christmas long after the decorations have been taken down.
- Auto Emergency. Do you always forget when your MOT is due, or your car tax needs renewing, only to remember at the last minute when it’s too late to save up the money? Again, a payday loan in this instance can be a lifesaver. A small loan should cover most likely car-related emergencies, and will not linger like the smell of a bad exhaust.
- A holiday. I’m not saying you should pay for a holiday with a payday loan. But, if you want some spending money and you haven’t been able to save up – for example if you’ve gone for a last-minute late deal package holiday – then a payday loan will allow you to buy foreign currency, souvenirs and anything else you might require while you’re away.
- Unexpected direct debit. If you have a direct debit set up with a company and it’s bounced back by your bank upon the first request, the company will usually request it again a few days later. This is where the payday loan comes in useful; applying for the loan a couple of days before the funds request will ensure the money is sitting in your bank waiting. The £25 or so you pay in loan fees will usually be much less than the charges applied by your bank for a second refused payment.
- Emergency money. It’s impossible to foresee every little thing which could go wrong. Some people have an emergency savings account set up for contingencies, but many savings accounts penalize you by deducting interest if you withdraw too much or too frequently. If this is the case, the next time an emergency crops up, a payday loan could help you avoid a loss in interest on your account. If you have a high AER, the fees attached to a payday loan could be considerably lower than what you’d lose if you used your savings.
Although payday loans do indeed have their uses, they aren’t always the solution. Avoid getting one purely because you fancy a bit of a spending spree or feel like a fancy meal out. When all’s said and done, they are an emergency loan, and should be treated as such. With proper money management, most of the above scenarios can be covered without the need for a payday loan.
Author Bio
Louise has worked in the financial sector for many years. She currently works as a writer for Moneysupermarket, and writes financial articles for a number of other sites as well.
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