Many people are facing huge financial challenges right now. As well as the ongoing impact of the pandemic, the £20 a week Universal Credit uplift is being removed, energy and fuel prices are rising, and from April 2022 there will be an increase in National Insurance which will later become a new Health and Social Care Levy. So it’s not surprising that taking out a loan may be one of the things that you are seriously considering at the moment. But is that always a good idea?
In this article we will look at:
- The advantages and disadvantages of taking out a loan.
- The risks of taking out a payday loan from a high acceptance direct lender.
- Alternative places to look for a loan.
The advantages and disadvantages of taking out a loan
Sometimes a loan is exactly what you need to help sort out your finances. Whether you need to make a major purchase, sort out home repairs or improvements, or have a family emergency, a loan may be the best solution. The two main advantages of taking out a loan are:
- You receive all the money you need up front and can then repay it in affordable instalments.
- Having a loan from a reputable lender - and managing it well - can help to boost your credit score.
However, never forget that a loan is a major financial commitment and needs to be carefully considered. The two main disadvantages of taking out a loan are:
- If you borrow more money than you can afford to repay you can end up sliding into debt.
- If you cannot afford to repay your loan, or your loan application is rejected, this can damage your credit score.
There can be particular issues with certain types of loan, for example payday loans. Let’s take a look. The risk of taking out a payday loan from a high acceptance direct lender The term payday loan may well be familiar. A payday loan is a short-term loan, often just for a few days. The idea behind a payday loan is that it is money to tide you over to your next payday, either for an unexpected expense or normal living expenses.
Payday loan companies are often high acceptance lenders. This means that they will accept a high number of applicants who apply for a payday loan with them. They can do this because as direct lenders, they make their own lending decisions.
This all sounds like good news, but needs careful consideration. We saw earlier that when taking out a loan it is dangerous to borrow more than you can afford. Not only can this cause you to slide into debt, but it can also damage your credit score.
The main risk of taking out a payday loan from a high acceptance direct lender is that interest rates are usually very high. This means that the total sum of the loan repayments will be much more than the money originally borrowed. This can lead to major problems if the borrower cannot afford to repay the payday loan and perhaps has to take out another payday loan to do so.
It is possible to very quickly become trapped in a vicious circle of debt and further borrowing, especially as there may be fees to pay for missed payday loan repayments.
So before you decide to take out a high acceptance direct lender payday loan, think carefully about whether you can really afford to do so, and whether there may be a better way forward.
Are there alternatives to payday loans?
Yes. Fortunately there are many responsible direct lenders who offer alternatives to payday loans at better rates of interest. Direct lenders who have a reasonably high acceptance rate but who will also not lend money if a borrower is unable to afford it.
As a direct lender, Fair Finance offers short term loans as an alternative to payday loans. Because we are a non-profit organisation, our interest rates are usually cheaper than high acceptance direct lender payday loans. Our repayment period is also longer: you have up to 18 months to repay one of our loans and we will not charge you any penalty fees if you are able to repay us early.
Above all, we are passionate about giving our customers a fair deal, and being honest and trustworthy. We will try to help you find the best financial solution that we can, taking into consideration all your current circumstances. A solution that will not cause you to drift further into debt, but help you move forward into financial wellbeing.