There are many people that feel that payday loans would just be too expensive and they just do not bother to consider them at all. This is not surprising as when you see advertisements for them they will put the AER figure and it will be a huge percentage. This can look too scary and so people will just reject them. Although the companies have to put the figure on the ads so that people are aware of the costs, the percentage does not tell the full story. It is therefore worth working out how much the costs really are, finding more about these loans and then deciding whether they are right for you.
Calculating the loan costs
It is good to calculate how much the loan will cost you in monetary terms. This makes a lot more sense than a percentage and it is surprisingly easy to do. If you go to the website of a payday lender, you will find a calculator. You can enter how much you wish to borrow and how long for and it will let you know how much you will need to repay. You can use this figure to compare with other lenders or you can take away the amount that you are borrowing to see how much in fees you are paying. If you do this on the websites of many different lenders you will be able to compare the loans and work out what the costs are and which one will be cheapest.
It may still seem like a lot of money but it is worth understanding why. All loans have administration fees that you may either pay upfront or have added into the costs and when the loan has lots of repayments this only adds a little to each. However, when a loan has just the one repayment, like a payday loan, then it is all added in to that and therefore makes it expensive.
Payday loans also have other features that can make them expensive. They can often be arranged at anytime meaning that there is staff available outside of normal office hours and they will need to be paid more highly for doing so.
Payday loans are also available to anyone regardless of their credit rating. They do no credit check and therefore take on a lot of risk when they lend money. There is an increased risk that the loans will not be repaid and therefore they charge more to protect themselves against these losses.
More about payday loans
Payday loans came about in order to help out those with a poor credit score that were unable to get money elsewhere, which is why they do no credit checks. They are also available to help those who need money in an emergency and therefore can be arranged very quickly. They tend to lend between a few hundred and a thousand pounds at a time and the money has to all be repaid in a lump sum on your payday. A direct debit is set up for the payment to make it easier for the borrower to remember and it is made on their payday to increase the chances of there being enough money available to repay it.
Being paid off quickly means that the loan is not hanging around for long and so this can get rid of any anxiety that you have about the loan. Some people do not worry too much about borrowing money, but there are others that do find it to be a stressful and so borrowing for just a small period of time could be really beneficial to them.
There are a lot of payday lenders and so it is worth comparing them. Some are more established and better known that others, but prices and customer service vary between them and it is wise to spend some time finding out more about them before not only deciding whether to take a loan but who to take the loan out with.
Are they right for me?
It is a very personal decision as to whether a payday loan is right for you. It will very much depend on your own personal circumstances. If you need money quickly then they can be a solution to that and if you have a poor credit record. They can also be an option to fall back on if you have no others. However, all decisions to borrow money need to be taken very carefully. It is important to make sure that you really do need the money, that you can afford to repay it and that you feel that it is worth the price. Check out all of the alternatives to make sure that you are making the right decision. Whether you feel a loan is too expensive will very much depend on whether you feel that it will be worth it considering what you are paying for with the money.