If there’s one thing that we know about life, it’s that it can be very unpredictable and fortunes can turn on a dime, as they say. One moment you’re in a very comfortable position and the next you’re wondering how you’re going to pay your bills, all because of an unforeseen curveball thrown your way.

Of course, having a savings cushion can help keep your head above water to a certain extent but growing numbers of people are finding that what they’ve squirrelled away over the years is now being eaten up by the cost of living (1) and wages that haven’t kept pace with the rate of inflation… leaving many open to the possibility of debt.

One potentially attractive option for people wondering how to go about paying their bills and keeping food on the table are payday loans, which grants them fast access to the cash they need.

For people with a bad or limited credit history, payday loans can help them bridge the financial gap, but it’s important to know what you’re getting into before you sign on the dotted line, as these products could cause more problems later down the line.

What are payday loans?

Payday loans are short-term loans for small sums of money, available from internet sites and shops on the high street, that are typically paid back within a few weeks. Borrowers have been afforded some protection in recent times, however, since payday firms now have to complete affordability assessments like all other lenders.They’re often easier if you’ve had problems in the past, but interest rates can be higher than other loans, which can see borrowers fall into debt relatively quickly, debt that can be hard to clear.

If you do decide that payday loans are a good option for you given your current situation, it can be beneficial to shop around for different products so you can compare the various interest rates and charges. 

This will ensure that you get the best deal available, although you should also make sure that you’re clear on what might happen if you’re unable to pay the loan back. It is also advisable to check that your lender is approved by the Financial Conduct Authority (FCA) so you can make sure that it’s not a scam.

The FCA did recently bring in stricter rules and regulations relating to payday loans, so they’re now paid off over a longer period of time (up to six months), but it’s important to note that these products are still one of the most expensive types of borrowing available.

Why are payday loans bad?

At first glance, payday loans seem like a good solution to short-term financial difficulties because you can get access to cash quickly, but the short terms and high fees mean that borrowers can find that they can’t settle the debt on time.

On top of the interest rates you’ll have to pay, these loans may include other fees that increase the overall cost, such as for late payments.

If you’re finding it hard to keep up with loan payments, it’s important to speak to your lender immediately so you can explain your situation and come to a resolution together. Ignoring the issue won’t make it go away. Instead, you’ll find yourself in a bigger financial hole as a result.

If you are struggling with debt at the moment because of cost of living challenges, get in touch with us today to find out more about our debt advice services.

References:

1. https://www.bigissue.com/news/social-justice/people-are-skint-six-million-workers-have-no-savings-as-expensive-2022-looms/