Payday loans: only just better than selling a kidney.

May 9, 2019 Icon 3 mins read
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Payday loans. Guaranteed approval. An answer in less than 10 minutes. Quick cash. No hidden fees. No paperwork. Also, the second worst thing you can do to your credit report.

Let’s get something straight. Payday loans are not good. Sure, they’re a solution to a problem, but so is selling a kidney.

Selling a kidney wouldn’t have such significant implications on your credit report. Nor would it burn a hole in your bank account with hefty fees and interest rates. It would burn a hole in you though, so I don’t suggest you use that as a means to get quick cash.

The choice is yours, but if you want to consider the prospect of a payday loan, at least know what it is you’re facing.

Firstly, be realistic.

Don’t take a payday loan if you have even an inkling that you won’t realistically be able to pay it back when it’s due. The interest fees of these loans are extortionate. If you need to extend it, you’re talking about a lot of money in interest alone. Can you afford that?

Payday loans are short-term, but it is for this reason that they can severely impact you in the long term. Jot down your income and expenses, ensuring that you will 100% be able to pay it back on time. If you can’t, don’t take it.

How much are you spending on the loan? In some cases, you can be paying back twice as much as you borrowed. Work this out before you apply. They usually put this in the small print, so just make sure you read it. Let’s say you’re taking a payday loan for a new iPad. If, over 12 months, the cost of the loan for your iPad doubles, consider that in that year, you could have two iPads. Or, you could have your iPad in 6 months and start saving for your next big purchase.

Things to consider

Are you making any major purchases in the next year? If you’re planning to apply for a mortgage, a payday loan on your credit report could potentially derail your plans. When looking at your credit file, lenders take into account the most impactful type of credit you have, and whether this has a positive or a negative impact. Payday loans are, by far, the most impactful credit you can have, so you will need to wait at least three months before making any applications. The reason for this is simple; If you need a payday loan, then you’re likely to have poor affordability.

And, since we dropped that bombshell on the first line: The worst thing you can do to your credit report? Go Bankrupt.

About the author
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Zoe Stabler

Zoe is a cat owner, ice skater and Christmas enthusiast living in London.

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