Payday loans are an option that many people choose to take and find that it suits them well. However, when we are considering a loan, we should always think about what alternatives there are available. This should enable us to make the best decision that suits us and hopefully will give us the best value for money. So, considering all options is well worth it.
- Do not buy the item – whenever we are borrowing money, it is always really important to make sure that we really need the item that we are spending the money on or that it will really improve our situation. Many loans, including payday loans, are designed for emergencies. This could perhaps be when we get a bill that we have no money to pay, when we need food and have spend our salary or if we need to replace a white good and have no other option available. Make sure that you think hard about whether you really need the item that you are buying.
- Use savings – if you have any savings then it is best to use these to pay for the item rather than borrowing money. It can be hard to part with savings as they can give us security as we will know that we have something to fall back on. Alternatively, we may have been saving up for something specific and want to use the money for that. It is important to try to separate our emotions when we are making financial decisions. By using savings, we will be spending far less money. This is because the interest that we get on savings is very small compared to what we pay out in interest and fees on a loan. Even if your savings are not enough, if you can use them towards the purchase, then you will end up paying less in costs for the money that you do borrow.
- Save up money – if you can wait for the purchase then save up for it. Put some money aside each month and you will be able to buy it without borrowing. It is best to open a savings account and set up a direct debit to transfer money into it every time you get paid, so that you can start to build up the savings without really having to think. Putting money aside as soon as you get paid, will mean that you are less tempted to spend it on other things.
- Borrow from people we know – borrowing form other people could be an option and often this is free. However, not everyone knows anyone that will lend to them and others feel that they would not be happy doing this. It is an option that you should consider though as it could be a lot cheaper. Do make sure though, that you sort out with the lender, what their expectations are with regards to repayment and then there will be less chance of you falling out over it,
- Use credit card – a credit card can be very convenient and sometimes cheaper than a payday loan. However, you do need a good credit record and if you do need money in an emergency it may take too long to apply for a credit card compared to a payday loan. A credit card can be easier to manage as you can repay just a small amount each month and choose when to repay the outstanding balance. This flexibility suits a lot of people but it does mean that you will be paying a lot in interest and the longer you take to repay, the more expensive it will be. You may also have the debt outstanding for a long time which can cause stress for some people.
- Use overdraft – an overdraft is often giving with a current account and you will be able to borrow up to a certain amount extra to what you hold in the account. If you have not arranged an overdraft or spend more than you are allowed, this is called an unauthorised overdraft. These are very expensive and if they have daily fees and interest they can soon become far more expensive than a payday loan and unlike payday loans they are not capped. So, you do need to be very careful. You will also need a good credit record to get an overdraft and if you do not, then a payday loan may be the only option available to you.
So, as you can see, there are many options and you may even be able to think of more. This means that you should take a lot of thought in deciding whether a payday loan is the best option for you. You need to consider how much the different options cost as well as how they work in order to decide which you think will give you the best value for money.