By Arnab Dey
Do you also experience panic when a sudden emergency arises out of nowhere? Well, rest assured, you’re not alone.
Your car won’t start, a boiler broke, or your pet needs an urgent visit to the vet—it could be anything.
Time-sensitive situations like this require quick thinking and resourcefulness to manage this urgent expense.
Most people resort to payday loans to tackle such emergencies. These loans are easily accessible online, disbursed quickly, and have short repayment periods.
However, you also need to remember that this speedy access to funds comes with high interest rates.
Oh, but thank god! You will find much better credit options when dealing with an emergency expense, such as a Salad personal loan.
These are smarter choices as they come with affordable rates, manageable repayments, and lower risks.
In this article, we’ll explore whether payday loans are worth the risk of dealing with an emergency expense and discuss alternatives you can consider.
What Is A Payday Loan?
A Payday Loan is a short-term loan that lenders decide based on your income. These are high-interest loans.
It’s called a payday loan because the amount granted is typically part of your paycheck. You need to study the numerous features of a payday loan to know if it’s worth it.
What Are The Different Disadvantages Of A Payday Loan?
Although payday loans might come off as a lucrative concept, they have certain disadvantages that will make you believe otherwise. Let’s take a deeper look at that.
1. Quick But Expensive
To be fair, payday loans are an attractive option for employees for a reason. In ordinary times, you have the luxury of time to scout for credit options on the market.
You can do your research, compare your borrowing options, and run checks on your lenders. Always remember that thorough research before taking a financial decision is very important.
However, when an emergency expense occurs, you’re crunched for both time and money. You’re looking for the easiest, most inclusive, and accessible credit option.
Payday loans fill that gap and present themselves as the best option with their quick access to funds.
While short repayment periods seem pretty straightforward, they give you limited flexibility.
If you’re already living paycheck to paycheck, taking a payday loan can exacerbate your financial struggle.
But guess what? A personal loan, on the other hand, can be a smarter option to tackle an emergency. Sounds strange? Let me clarify.
This is because they have a longer repayment period. Yes, this allows you to spread the cost of the loan over a manageable time.
2. Higher Risk Of Debt
But wait! There’s more to know. Payday loans may seem like a quick fix to all your financial woes, especially in an emergency.
There’s no waiting time, no endless paperwork to deal with, and you get your funds within 24 hours.
You may think that seems like the perfect and hassle-free solution to meet urgent expenses, but that’s not always true.
While payday loans offer these benefits, there’s a higher risk of incurring debt. This is generally the ick-point, where you need to pay attention.
You can use these loans to manage short-term expenses, but you have to be sure that you can repay them by your next payday.
This is because missed payments not only incur high penalties but also trigger the need to take another loan to repay an existing payday loan. This can trap you in a potential debt cycle.
By contrast, personal loans from ethical lenders allow you to budget comfortably for repayments without compromising on essential expenses.
Therefore, you get an affordable, low-risk option compared to payday loans. Other points will make you feel that a personal loan is a better option; we’ll get to that in the next point.
3. Repeated Borrowing Is Likely
Did you know that most people are likely to borrow after they take a payday loan? While payday loans are designed to be short-term solutions to manage small expenses, people often find themselves returning to taking payday loans repeatedly.
For example, let’s assume you take £500 as a payday loan in the middle of the month. You have to pay this amount immediately towards your loan repayment when your paycheck arrives two weeks later.
This doesn’t leave you with much savings, and you’ll barely cover your essential expenses. In most cases, you’d be tempted to take another payday loan to make ends meet.
This repeat borrowing cycle can create an unhealthy financial habit and dependency on credit. But remember to be careful!
You may find yourself using a payday loan as a financial crutch that eventually leads to a debt cycle. So, try to keep track.
You can avoid this potential risk by opting for a personal loan instead. This will allow you to make payments for manageable installments and alleviate your financial stress.
4. How Personal Loans Are A Better Option
Although the FCA has capped excessive charges and rates on payday loans to prevent predatory lending practices, these are still quite costly. Aside from high borrowing costs, payday loans can also strain you financially.
For example, with a payday loan, you may have to pay £500 plus interest in two weeks. This is both stressful and difficult to accommodate in your budget.
On the other hand, with a personal loan, you could be looking at paying £520 over 3-6 months. You can plan your budget around repayments more comfortably this way while managing your emergency expenses.
Borrowing a personal loan from responsible and ethical lenders also comes with other advantages.
This includes transparency over terms and conditions, lower APRs, and less likelihood of incurring hidden fees.
Even with a longer repayment term, you pay less on your personal loan over the total loan period than on a payday loan.
Payday Loans vs Personal Loans: Who Wins?
A quick and accessible credit option doesn’t necessarily mean it’s the best choice, especially to meet urgent expenses.
In the case of payday loans, the total cost and high interest rates always outweigh the seeming benefits of speedy fund disbursal.
In such cases, a personal loan is a smarter option and can help you stay steady as you navigate a financially rough patch.
We hope this article has helped you understand payday loans better.
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