We’ve all been there. It’s nearing the end of the month and you’ve got a bill to pay or a commitment that requires money – but you haven’t been paid yet and your bank balance is running low. How are you meant to cover the cost or pay that bill? Many use the services of a payday lender or short-term loan provider to bridge the gap until they get paid, but this can have detrimental consequences and you should try to avoid going down that route if you possibly can. Below we explore why it’s not as convenient as is advertised and some alternatives you may want to consider.
The potential consequences of payday loans
Payday loans may seem like a helping hand at a time when you need money quickly, but you must ask yourself is it worth the risk and consequences? Firstly, payday loans are offered with exceedingly high-interest rates, sometimes upwards of 1000% APR. This can leave you paying off relatively small debts for some time and often leads people into a downward debt spiral. Not only should you consider the interest you will have to pay back but also the future income that you will be taking away from yourself which could be used to invest in your own development rather than paying off debt endlessly. What’s more, taking out a payday loan can impact your credit score and rating, potentially reducing your chances of being accepted for credit throughout your life. So, what are some alternative options you can consider to avoid taking out a payday loan?
Borrow from friends or family
It’s always worth asking friends or family, even if you don’t want to, because it could save you significant amounts of money and stress down the line. Sometimes swallowing your pride is the best way forward and repaying friends and family on time will make them more likely to lend you money in the future if you need it.
Use savings if you have some
It goes without saying, but if you have savings built up then these are certainly a better option than taking out a payday loan. It may hurt to see your savings drop but owing yourself is much better than owing someone else who may be charging interest.
Pawn some personal belongings
If you have any valuable personal belongings that could cover the cost until you get paid, you may want to consider pawnbroking. Pawning your possession can provide you with a loan secured against the item, which is a good way to get a loan without impacting your credit score. You must understand that you could lose your item if you fail to repay the broker, however. You shouldn’t offer something as collateral that you can’t afford to lose.
Ask your employer for an advance on your pay
If all else fails and presuming you’re in employment, you may be able to speak to your employer about receiving an advance on your salary or wage. This is a good way to overcome any one-off financial shortcomings, but you shouldn’t make it a habit because you will rely further and further on being paid early which is at the discretion of your employer.
