Payday Loans: Reasons for & Against

by : Liam G

Payday loans can either be a short term blessing, or a longer term problem, it all depends on your intentions.

There are a number of situations where the facilitation of a payday loan may be a good decision, just as there are situations where they would not be.

To begin with, we will look at situations where taking out a payday loan is not a good idea.

First and foremost, do not take out a payday loan if you suspect you will be unable to meet its repayment.

As the name suggests, these loans relate to your payday, in that you will be expected to repay the loan and any fees in full on your upcoming pay-date. Generally speaking the length of a payday loan term is about 30 days.

So if you will be unable to do this, then it's advised to seek other means of financial support, such as friends and family, or perhaps a more long term loan, such as a personal or secured loan.

Another example of bad usage is using the loan for a frivolous purchase. They should be used to pay for absolute necessities, some examples of which are discussed below.

If you have an upcoming payment, which you know you will not be able to meet then a payday loan can be useful. This is especially the case if the fee for not meeting repayment for the current loan exceeds the fee for taking out the new loan.

Using the same example above, failure to meet repayment might also result in damage to your credit rating, which will make it harder to obtain lines of credit in the future.

As you can see, there is an equal balance between the situations where payday loans can be a good or bad decision. If you are still unsure then it is advisable to speak with an IFA (Independent Financial Advisor).