Taking out any sort of loan is a big decision and it is well worth thinking hard about whether you really need it or not. It is good to think about whether you need the loan, whether there are any alternatives to borrowing and then whether this is the best loan type for you.
Do I Need the Loan?
Think about what you need the loan for and whether it is really necessary for you to have it. If you can wait to purchase the item until you next get paid then this will be a much cheaper option. It could even be that you will be able to go without the item altogether. It can often be tempting to borrow money to buy something that we really want and have wanted for a long time. However, if it is not something that we really need, then we should not necessarily buy it. We need to think about what value it will add to our lives and whether it is worth paying that extra money for it. It can be good to find out how much the loan will cost and then you will be able to decide whether you think that it will give you good value for money.
Some loans are necessary of course. If you need to pay a bill and will have your power cut off if you do not and the utility provider will not let you delay then you may have no choice but to borrow the money so that you can pay it. However, if you want the money to pay for something that you can really do without such as some new jewellery then it could be best to not take out the loan.
You also need to think about whether you can afford to repay the loan. Look at when you will be expected to repay it and how much you will have to pay. You may find that you will easily be able to repay it, but others this will not be the case. With a payday loan, you normally have to repay the whole lot at once and so this means that you will need to find a lump sum of money and so you will need to be prepared for this. You will also need to make sure that you are then able to cope with the rest of your bills after you have paid out this lump sum.
It is also worth considering whether there are any alternatives to taking out the loan, As mentioned above you may decide that you do not need a loan at all, but if you do, then there may be other ways to get the money. It could be that you will have savings that you could use, for example. It can be tricky using savings as we tend to save up for a reason, wanting to be able to use that money for something. If we then have to use it for something else we feel like we do not want to do this. However, it is most likely that you will be much better off if you use your savings as the small amount of interest that you get paid from them is so much less than the amount of interest that you will have to pay on a loan. If you have no savings but have a bit of time, you could consider saving up instead of getting a loan as well. If you do not have the time for this, then it is worth looking at alternative loans as well.
Best Loan Type?
Picking the right loan can be tricky but it can be really helpful. This is because you can spend more than necessary otherwise. Different types of loans tend to offer different amounts of money and also you will be charged different amounts. Payday loans tend to lend up to £1000 but they are notoriously expensive, especially if you are not able to repay them on time. This means that it could be better to look for alternatives. To get something for that amount of money, that an be arranged quickly can be tricky. However, if you have a credit card or overdraft facility these can be cheaper options, depending on how quickly you are able to repay them. The repayments for both are more flexible which can be helpful and make them easier to manage, but there is a risk that you will leave them outstanding for a long time, which could make them more expensive, depending on how long you take to repay them. If you use an unauthorised overdraft, then this will be a lot more expensive and could easily be dearer than a payday loan if you do not repay it really quickly. If you have a poor credit record a payday loan may be your only option, but if you find one with a good price and repay it on time, then you can make it work for you.