All loans cost money and payday loans do have a reputation for being expensive. However, they do provide a service which is vital to some borrowers, particularly those with poor credit records or people who need money really quickly. It is worth thinking about the cost though and how much you are prepared to pay for the loan.
Initial Cost
When you go to a payday lenders website you will find a calculator that you can use to see how much a loan will cost you. This can be extremely useful, both to allow you to see how much you will need to repay as well as being able to compare lenders to see who is the cheapest. They have to put an equivalent APR cost on their website and that is usually a huge and scary figure but this can be very misleading. The figure basically shows what you would pay if you borrowed the money for a year, but you will only be borrowing for a few weeks normally. It is much better to see how much you will actually be paying back in pounds. Then you can work out how much it costs. It is easy to take away the amount that you are borrowing from the total you are repaying, to work out how much you are being charged for the loan.
Late Repayment Cost
Sometimes there will be an occasion when someone is unable to repay their loan when it is due. This can happen for all sorts of reasons and is common with all types of loans. A payday loan is set up to try to make this less likely. A direct debit is set up for the repayment on the day that you get paid and this means that you will not forget to make the payment and you will be most likely to have enough money to repay it. However, there is a chance, of course, that other bills will go out first or you may have an overdraft that gets repaid automatically and so there is not enough money to cover the loan. In this case you will be charged extra money. The way that tis charge works and how much it costs will depend on the particular loan. It can be a percentage, a fee per day the money is outstanding or a combination of interest and fees. However, there are tight rules in the UK on payday lenders and they cannot charge above a certain ceiling. This means that once the charges for the loan reach a certain point, they cannot charge any more. At the moment this limit is set to the amount borrowed. Which means that if you borrow £100, you can never be charged more than £100 in interest and fees, this means that the maximum you will have to repay for that specific loan will be £200 altogether.
Total Costs
Obviously no one wants to pay out more than they have to for anything. This means that by making sure that you pay your loan back on time, you will ensure that you only pay the minimum charges. However, whether those charges or any additional ones are how much you should be prepared to pay very much depends on your own personal viewpoint. The money that you are borrowing will be being used for something. The value on that thing that you are using it for, will be determined not just by its cost, but also how much it is worth to you. For example, if you are paying an electric bill which means that you will not be cut off and therefore able to keep your family warm and you can cook meals for them, this can be worth a lot to you and them.
It is good to think about whether you think the thing that you are paying for is worth that extra money. There are a lot of considerations such as how much it is worth for you. Think about if that item was actually priced at the amount you will be paying for loan and whether you would still pay that price for it. Then you can decide whether it is worth that extra money.
With a loan it can be complicated though as there could be some stress associated with borrowing and also some hassle in finding the money to repay it. You need to think about the cost of that as well. Is it worth it? It will depend on you as well. Some people worry a lot and this can make them feel stressed. Others use their worry to help them to organise and plan things so that they are well prepared and do not get so stressed. It can be wise to make sure that you plan as well. Think about when the loan needs to be repaid and how you will manage to do that. Consider how you will manage financially once it is paid to cover the bills for the rest of the month. If you have a good plan, that you know that you can stick to, then there will no need to get worried and stressed and so this will not be an issue that you have to consider.
If you think that the cost of a payday loan is too high, then you will need to find an alternative to one. This may not be easy if you need money quickly or if you have a poor credit record. However, it is a good test to see whether the item that you are using the loan for is really necessary. If you can wait a bit longer for it, perhaps until you get paid, then it just shows that it was not a real emergency and you could cope for a while without the money. However, if you really do need the money and think the loan is expensive, then compare different lenders as you may find one that is cheaper and therefore more affordable.