In the vast landscape of financial products, payday loans are a familiar feature. Indeed, they have been around for long enough – and marketed sufficiently aggressively at times – that they might even feel as fundamental to British culture as fish and chips, red post boxes or, well, Big Brother.
But does that mean, in the event that an unexpected cost turns up in your life a few days before payday and you need a quick injection of cash to pay it, you would be advised to take out a payday loan?
Such loans are certainly a convenient – or at least convenient-looking – option for a lot of people. It’s as easy as you like to spend a few minutes applying online for one, the eligibility criteria for them aren’t as strict as is the case for certain other types of lending, and even if you have bad credit, the chances are that you can get approved for one.
But below, we have set out just a few reasons why taking out a payday loan to “tide you over” financially until you are next paid, could be a less-than-brilliant idea.
#1: these loans can be horrendously expensive
Yes, yes, it’s more-or-less the thing that anyone and everyone knows about payday loans these days, but it’s nonetheless worth reiterating: a payday loan could seriously hit you in the pocket.
It isn’t unheard-of for the APR on payday loans to be as much as 1,500%. This – if you’re already in a financially tight position – could be enough to send you into a debt spiral (or deepen an existing one) if you aren’t extremely careful.
It’s crucial to fully understand the terms and costs associated with any form of credit before proceeding.
#2: payday loans are associated with predatory and problematic practices
Some good news first: a lot has changed in the world of short-term loans in the UK since the “bad old days”, when aggressive collection methods really were rife among payday lenders. A lot of regulation has been put in place over recent years to help protect borrowers.
However, there are still lingering memories of payday lenders sending intimidating letters to debtors, so that in some cases, they would be terrified into repaying their loans without entirely understanding all the options available to them.
Even to this day, if you can possibly avoid having to be subject to payday lenders and their practices, you might much prefer to do so.
Warning: Borrowing money should not be a decision taken lightly. If you struggle with repayments, it could have long-term impacts on your financial health. Always seek advice if unsure.
#3: borrowers aren’t restricted to only payday loans these days
One of the reasons why payday lenders thrived back in the day – and felt able to behave in threatening ways towards borrowers – was because so many vulnerable people felt, probably correctly in many cases, that they had little other option.
Fortunately, in the year 2023, you are no longer necessarily limited to taking out a loan that has to be paid back in its entirety in a month or two, or when you next get paid.
CashCompare acts as a credit broker and not a lender. Our goal is to provide you with options that fit your needs.
We believe that the short-term loans we help make available to borrowers in the 2020s represent the best present-day alternative to payday loans. This is not least the case because they can be paid back over a longer period of up to 12 months – or perhaps even two years or longer.
If you are interested in learning more about whether such a loan could represent the most suitable option for you, we have a no obligation quote form that you are welcome to fill in, so that you can educate yourself on the possibilities.
We work with an assortment of short-term loan providers, to help ensure borrowers do not necessarily have to depend on payday loans – even if they have bad credit, or are unable or unwilling to add a guarantor to their loan application.
Before making any borrowing decisions, we recommend you seek independent financial advice or consider other sources of information to ensure you make an informed choice.
"If you're considering borrowing money and are unsure about the best option for your circumstances, organisations like the Money Advice Service offer free and independent advice."
"Warning: Late repayment can cause you serious money problems. Always consider if borrowing is the right option for you and ensure you can repay your loan." For help, go to moneyhelper.org.uk.