How do I know if I need a loan?

First thing’s first: what is a loan?

At cashasap.co.uk, we offer two types of loans: payday loans and multi-month loans. They’re both types of unsecured short term loans, however a payday loan has a single repayment date within 35 days, whereas a multi-month loan is repaid in instalments over three months — this makes the payments a little more manageable as we understand life can throw in little surprises at any time.

Short term loans tend to have high interest rates and because of this, they can be unattractive to prospective borrowers.

So, what are the alternatives?

Some common alternatives include:

• bank loans
• overdrafts
• credit cards

The trouble with bank loans is that they tend to be for a few thousand pounds, so if you only need to borrow a small amount, for example £200, a bank loan forces you to borrow more than you need to which is never advisable.

Overdrafts provide another alternative to short term loans if you need to borrow a small amount of money, and if you have an arranged overdraft (that is, an overdraft amount that has been agreed and set up with your bank and is linked to your bank account), then this could be cheaper way to borrow just a small amount of cash.

However, we can’t always predict the future of our finances, so relying on overdrafts can become vastly expensive if you aren’t careful and dip into an unarranged overdraft.

An unarranged overdraft is just as it sounds: an overdraft which hasn’t been arranged with your bank and therefore it’s money which you haven’t set up an agreement to borrow. Banks can charge phenomenal rates for using an unarranged overdraft (although a huge call for reform against these charges is starting to take its toll on banks as they pledge to reduce daily charges and monthly caps), which actually make short term loans a less expensive way to borrow.

Credit cards are another method of borrowing but are only suitable if you can reliably and consistently pay off your debt each month. Because of the interest rates on credit cards, while seemingly low, the debt can increase very quickly — as evidenced by the average credit card debt per adult in the UK accumulating to £8,000 (October 2017, The Guardian). Credit cards are also difficult to acquire if you have a bad credit history — or even a limited one. Credit cards that allow for bad credit histories often charge a much higher interest rate to cover the risk of the customers to whom they lend.

So, if you find yourself in need of some extra cash until payday comes around, short term loans can be a sensible option. However, there are some do’s and don’ts (or at least, some reasons why and why not) when it comes to borrowing from a payday lender.

One thing to be very clear about: if you’re already in financial trouble, or you are starting to worry about your finances, then taking out another loan will most likely not help. The best thing to do in this situation is to contact a free money advice service or talk to family and friends, as debt isn’t something you should have to face alone.

If you find yourself short of cash every month, bad credit loans might not be for you either as you will have to repay more than you borrowed, and you might find yourself in a cycle of debt. If your finances are coming up short each month, making a budget sheet and analysing your income and expenditure can be a great way to see where you can cut out unnecessary costs.

What circumstances justify taking out a short term or payday loan?

There are some perfectly justifiable reasons for taking out a high acceptance loan — and you shouldn’t have to feel bad about it as long as you are sensible and realistic with your borrowing amounts, always making sure you can budget for the repayments.

The natural ebb and flow of life means sometimes you can be in excess of cash, and unfortunately, sometimes you can be in a deficit of cash. An example of this might be when changing jobs as sometimes the paydays don’t line up. This would be a fair reason to take out a payday loan, as you can guarantee you will receive the funds to repay the loan, and without a payday loan you might fall behind on priority bills, for example. Similarly, when starting a new job, you might have to buy a season train ticket which you don’t quite have the funds for right now, but you know that you will on your next payday.

As long as you keep track of your finances, and you don’t rely on short term loans, they can be a great service to help you keep your life moving. Because we understand that not everything always goes according to plan, as a direct lender at cashasap.co.uk we offer same day and multi-month loans, so you can choose a loan that best suits your financial circumstances.