Payday loans seem to be a safe haven when you need an instant injection of cash. No paperwork and no credit checks, and you will receive funds in your account without further ado. Payday loans could not be better when savings are exiguous to meet the unexpected expenditure. As the purpose of these loans is aimed at tiding you over during emergencies, the disbursal limit cannot be more than £1,000. However, lenders generally do not lend this small amount. The cap is £700, depending on your income.

Payday loans are easily acquired. As they target only subprime borrowers, the need for hard credit checks is obviated. Soft inquiries are made, but they do not give an account of previous payment defaults. Since the risk on the part of a lender is too high, they charge high interest rates.

Payday loans are exorbitant. Interest rates are capped at 0.8% per day, which amounts to 292% annually. Because annual rates include fees and charges, they accelerate to a significant amount. Every lender has their own unique methods to calculate the risk involved, and therefore, annual rates will significantly vary. The higher the risk, the higher the interest rate. In some cases, the annual percentage rate could reach up to 1500%.

Adverse consequences related to guaranteed payday loans

Payday loans are quick. You receive money in your account in the blink of an eye. Payday lenders provide you with money based on the income and expense details you offer in the application form. It is easy to slip up, determining your default risk and lending you more than your affordability.

Payday loans are discharged in fell one swoop. It could be challenging to pay off the whole debt in a lump sum. Many borrowers end up rolling over the loan. As a result, interest penalties and late payment charges are imposed, accumulating the debt. If you refuse to settle the debt again, it will continue to mushroom, and eventually, you will find yourself in an abyss of debt.

Guaranteed payday loans cannot help ameliorate your credit score despite timely payments, but they will diminish your credit points in case of non-payments. It will make it all the harder to qualify for a loan at affordable interest rates. Once you get into an ongoing cycle of debt, it will become impossible for you to get out of it.

What should you do to avoid the perils of payday loans?

Payday loans are small emergency loans and are recommended only when you need money for an emergency. It is always enjoined that you never borrow more than your affordability. As these loans are paid back in fell one swoop, most of the people struggle to discharge the debt on time. Most of the people borrow £100 or £200. The amount seems paltry, and hence, you do not feel like you have to pay a whopping sum of money, but you forget that you are obligated to repay the debt in full within the same month.

How would you settle £115 when your budget did not have scope for £100? Even if you settle your dues, you will find that your budget falls short of cash to meet essential expenses. As a result, you will be forced to borrow money again. You will eventually find yourself trapped in an ongoing cycle of debt.

Here are the ways to avoid being trapped in payday loans:

You should borrow money only during emergencies. A golden rule of thumb says that you should never apply for payday loans to meet essential expenses.
Make sure that you research carefully while borrowing money. As each lender charges different interest rates, research is the passport to the best deal.
While comparing deals, look at the annual percentage rate rather than the interest rate. Do not forget that you will have to pay fees and associated charges in addition to the interest. Annual rates reflect the cost of the debt if you borrow money for a full one year.
Comparison websites could help you choose the most affordable lender, but interest rates displayed there do not include fees and monthly charges, so it should not be considered a reliable factor. You should rather peruse your budget. Check if your budget has the scope to repay the debt along with essential expenses. If not, avoid using these loans.

Alternatives to payday loans

If you need money for emergencies, you should consider other alternatives to payday loans. Though all types of small emergency loans carry high interest rates, payday loans are the most exorbitant. You should always try to consider other alternatives to save your money and minimize the risk of falling into debt.

Reach out to a friend or family

If you need a small amount of money, you can seek help from your friends and family. The best thing about that is that they will not charge you interest. However, it is always recommended that they pay some interest to minimize their loss of buying power. As a result of inflation, money loses its present value.

If you promised to pay back the money a month later, the money would have lost some of its value. Therefore, it is recommended that you carefully decide how much you should pay as interest on top of the borrowed sum. This will prevent any strain in your relationship. While borrowing money from them, you should clearly set the repayment term and amount. You both should be on the same page.

Most of the time, friends and family do not ask for interest payments. They just expect you to discharge the whole debt on time.

Apply for a bad credit loan

A bad credit loan is similar to a personal loan. As your credit score is not up to scratch, you will certainly be charged high interest rates, but be that as it may, bad credit loans are more affordable than payday loans.

Bad credit loans involve hard credit checks. It clearly tells your lender about your payment history. As they better evaluate the risk involved, they will unlikely lend you beyond your affordability. If they suspect that you cannot afford to pay back, they will turn down your application.

Bad credit loans are not always meant to be paid off in fell one swoop. Some lenders will require you to repay the debt in fixed monthly instalments. However, if the debt is so small, you would be asked to discharge the debt in a lump sum or in fixed weekly instalments.

Use your credit card

If you have not maxed out your credit card limit, you can use it to meet small emergencies. It would not be challenging to pay £100 or £200 after the bill is generated. Make sure that you settle the credit card balance in full within the grace period. Otherwise, they will cost you more interest than payday loans.

The bottom line

Payday loans are quite expensive, and therefore, they are subject to a high risk of default. You should use these loans only when you are completely sure about your repaying capacity. Consider other alternatives first so you do not end up with an expensive deal.