Emergencies are rarely avoidable. A financial crisis can knock on our doors anytime without any invitation. To deal with such a condition, you need a sound monetary plan. However, it becomes tough to create an emergency fund while managing regular expenses. To pay our bills on time, we often consider borrowing a short-term loan that can help us cover our obligations. Our immediate instinct during such times is to borrow money. You may find a plethora of articles over the internet that talks about reasons why you should use a payday loan. Here we will discuss 5 reasons you shouldn’t consider a Payday Loan.
What is a payday loan?
A payday loan is a short-term loan that allows an individual to borrow money without any collateral. These loans are also known as High-Cost Short-term Credit (HCSTC) because they have high rates of interest. In earlier days, a payday loan allowed a borrower to make a repayment within 30 days. However, the lenders have evolved with time, and now, a borrower can take out a loan for a period of twelve months. Different lenders offer various amount of money to borrowers. Typically, a credit provider allows you to borrow from £100 to £1,000.
5 reasons you shouldn’t borrow a payday loan
#1 High rate of interest
Most of the lenders levy high rate of interests on these loans because it doesn’t require any security and allows a borrower to repay the loan within a brief period. In January 2015, the financial regulator – The Financial Conduct Authority (FCA) introduced a cap on the interest rate and fee to protect the consumers from being exploited.
#2 May lead to a debt cycle
If you fall behind the repayments, your credit score can be severely damaged. Repeated failures in repayments can lead you to a debt cycle. It becomes extremely difficult to get out of a debt spiral once you are in.
#3 Habitual borrowing
Online Payday Loans allow you to borrow money in a convenient manner within no time. Once you borrow a loan, there are probabilities of you borrowing again. The easy access to funds develops a habit of borrowing and such habits are not considered healthy for your financial fitness.
#4 Probable scam
If you’re considering to take out a loan, ensure that you are dealing with an FCA authorised financial firm. You will find a lot of news about fake lenders who trap the consumers in their scam. You will be forced to pay an amount but the loan will never be transferred to your account.
#5 You cannot afford it
Be honest to yourself when you are thinking about finances. Never borrow a loan if you do not know how to repay it or only because you are receiving quotes from lenders easily. Borrowing a loan comes with a responsibility to repay it on time and in full.
A wide range of lenders in the United Kingdom offers Small Payday Loans. Evaluate your affordability and requirement – then decide to borrow money. If you feel that you cannot repay the loan, you must consider alternatives. Find an option depending on your needs and circumstances.