Short of money? Tempted by a payday loan? Friends and family could provide a cheaper and safer source of funds.
If you’re running short of cash you may be tempted into the arms of a payday lender. But while this might seem like a good idea to make ends meet a much better option will be to turn to friends and family.
Borrowing from family
Many people will instinctively shy away from this idea. None of us like to admit that we’re struggling with money and we don’t want to be a drain on those closest to us. But remember two things:
First – friends and family are there to help and support one another. In much the same way as you will be there for them, they will be there for you – and they’ll be happy to help.
Second – this is the cheapest form of credit there is: interest-free (unless your family is particularly mercenary) and with no real deadline to pay it all off.
Compare that with the amount you’ll pay for a payday loan and it seems to be a real no-brainer. Annual interest rates of around 1,000% are eye watering and you don’t have to look too far until you hear all sorts of horror stories about people who have been forced into debt because they’re struggling to pay off the loan.
The problem can be self-perpetuating. If you’re in financial trouble now, a loan may keep you afloat for this month, but it only kicks the issue further down the line. You may well find yourself struggling even more in a few weeks’ time.
It is true that quoting APR with payday loans can make the price appear much larger than it actually is. Most loans should be paid off within a short time, so lenders do prefer to point you in the direction of a single price for a defined term loan.
How much does it truly cost?
For example, looking at one website the cost of borrowing £250, if you repay within 10 days, would be £20. Pay it off quickly, then, and it’s not all that frightening.
There are of course times when you don’t want to bring friends into it. There’s an old saying “friendships and money don’t mix”. If you don’t want to allow money to muddy an otherwise straightforward relationship, the cost of a very short term loan might be worth paying.
Taking out a payday loan
If that’s the route you take, then you must make sure you handle the pay day loans in the correct way. Make sure you have money coming in quickly which can pay this off. This very much depends on your monthly pay cheque. The longer you leave it the higher the cost will be and you should never enter into a loan without a clear plan for paying it off.
You always need have sufficient funds to repay your loan and make it affordable for you.