Historically people have used payday loans to cover small cash needs while waiting for their pay to come in. These loans became popular, because they often worked out cheaper than borrowing by unauthorised overdraft and they helped to avoid cheques and direct debits being bounced. In some cases though, customers used this sort of loan very frequently and they actually became part of the customer’s longer-term borrowing solutions. As a result they became increasingly dependent on payday loans, which can become expensive and tends to lock people in to a cycle of debt.
To respond to this trend, the payday lenders are moving towards offering longer-term loans, typically up to 12 months, which are repaid in monthly instalments. The benefit of moving to an instalment arrangement is that borrowers can repay the loan over a longer period, making the monthly cost less than it would be for a traditional payday loan and helping borrowers to move away from continuous borrowing.
However, for people who have a short-term gap that covers a period until money is received, traditional payday loans can be appropriate. The cost is always clear up-front, they can usually be arranged quickly and without fuss and they are often cheaper than using an unauthorised overdraft.
Whether you choose to use a traditional payday loan, an instalment loan or any other sort of borrowing, the most important thing is to be sure that you will be able to repay the money on time. If you cannot, no matter how you borrow, it is very likely to cost you more.
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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk