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When Payday Loans Do (And Don't) Make Sense

Much has been made in the press recently about the payday loans industry, mostly focussing on the less savoury aspects of it and the more dubious companies involved. Indeed, the shady reputation of the payday sector has led to a massive tightening up of the regulations, with many operators forced to leave the market altogether rather than continue with their old practices.

With all the furore you could be forgiven for thinking that payday loans were an unmitigated evil with no redeeming qualities whatsoever, but this isn't a case. It's estimated that around 8 million of these loans are taken out each year, and while there's no doubt that quite a lot of borrowers get into trouble, many many others find this a useful service that doesn't cause any problems.

If you're considering applying for a short term loan, then how can you ensure you stay in the second group and avoid the first? To do this, it's vital to know when it could make sense to apply, and when it most certainly doesn't...

When A Payday Loan Might Make Sense:

If you have a truly unexpected bill that needs paying now, and can't be put off, then a payday loan could be a viable way of dealing with the problem. This is especially so if the problem is urgent, and other options such as arranging or extending an overdraft will be too slow.

Examples of this would include a heating failure in the depths of winter, a car breakdown that would leave you unable to get into work, or any other temporary problem that would have a significant effect on your life if it wasn't solved.

Just be sure you will be able to pay off the loan next month without leaving yourself short of money again, and if this means a month of beans on toast then so be it!

When It Wouldn't:

The list of things to avoid taking out a payday loan for is long and varied, but here are some of the major no-nos.

  • Paying off another payday loan
  • Making mortgage payments
  • Making credit card payments
  • Using them regularly to cover basics such as food
  • Paying for essentials such as gas or electricity
  • Splurging on luxuries or nights out

Apart from the last, all the above reasons are signs that your financial problems are more serious than can be fixed with a sticking plaster or a short term loan, and taking one out will only make matters worse. If you honestly have bills that you cannot meet, it's far better to get in contact with whoever you owe money to - you'll probably be pleasantly surprised how willing they'll be to help you by restructuring your repayments, giving you extra time to pay, or in any other way that will avoid the expense and hassle on both sides of debt recovery.

Likewise, if your budget regularly leaves you short of food or other essentials, then something needs to be done, either by reducing your expenditure through renegotiating debt repayments, or by drastically revising your budget wherever possible. You can get free advice on this from debt charities, Citizen's Advice and so on.

The alternative of a payday loan is only postponing the day of reckoning, and it'll be much worse when it finally does arrive.



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