When life doesn’t go to plan and causes cashflow shortfall, it can be tempting to use payday loans and instalment loans to pay priority bills in emergency situations. Of course, using any type of credit will depend on your circumstances and your financial situation. So, how do you know if you should use short term loans to pay your utility bills?

What can go wrong if my utility bills are not paid?

Household utility bills typically include:

  • gas bill
  • electricity bill
  • water bill

But can also include your internet or broadband subscription and TV license, depending on how it’s categorised.

While you won’t be cut off from your water if you fail to make your water bill payments, you could end up in serious arrears and water companies have various enforcement methods at their disposal to recover their costs. Not paying your electricity bills could mean you can’t switch the lights on in the evening, can’t watch TV or even charge your phone. And not paying your gas bills could result in you not being able to cook food or heat your home.

It’s not wise to ignore the issue if you suddenly find you don’t have the money to pay your utility bills. That’s why urgent cash loans can help resolve your cashflow issue on a short term basis so that your life can keep moving as normal.

How do you pay for your utilities?

The usual method of payment for utility bills is via a monthly direct debit. There may be other options offered by your utility’s provider such as quarterly or even weekly payments.

In some cases, you may pay a fixed amount each month, which usually means overpaying in summer, when we generally use less energy in our homes, but underpaying in winter, when our energy usage at home is greatest.

In an effort to get people to use less energy, providers are encouraging people to install smart meters in their homes to show exactly how much energy they use each day and how much it costs. These are not mandatory but if you’re trying to be careful with your budget, or maybe you’re just climate change conscious, they can be a great idea to help you manage your money more efficiently and cut down your energy consumption.

Other customers pay for their energy bills and water bills using a pre-paid method. This is common for people who do not have a good credit rating, as water and energy suppliers are not keen to offer utilities in advance to someone who has historically handled their credit commitments poorly.

How does a payday loan help me pay my bill?

Whichever way you normally pay your utility bills, a payday loan could help you to keep up with your repayments to your utility supplier when money becomes tight or when an unexpected cost arises that puts a strain on your budget.

Payday lenders might help you out if you just need an advance on your wages to pay a bill, but you can cover the cost of the bill, with an agreed amount of interest once your payday comes around. An instalment loan allows you to spread the cost over several months which results in smaller individual repayments. Some people find the smaller payments to be more manageable, though the overall repayment cost will be higher than with a payday loan since you are borrowing for a longer period.

What to think about when applying for credit?

Before submitting an application for any kind of credit, you should always ensure you can afford the repayments. It is also worth comparing payday loans before you apply to make sure you find a loan provider that can accommodate your specific circumstances when it comes to repayment dates, amount borrowed and even loan duration.

Payday lenders conduct affordability and creditworthiness assessments as part of the application process to mitigate the risk of lending irresponsibly and to make sure the loan repayments won’t cause you any financial difficulty. It's therefore important that you are honest in your application and create an accurate image of your financial circumstances. Putting incorrect information in the income and expenditure part of the application could get your application declined.

Why choose a payday loan?

A payday loan can help you raise the urgent funds you need to pay utility bills when another emergency cost has caused you to have insufficient money left in your budget to make the payment until payday. The application process is quick and simple, and you can usually apply online 24/7 and get the lending decision the same day.

However, you shouldn’t rely on a payday loan every month to cover your water and energy bills. Consider whether you may need to readjust your budget to reflect your finances more accurately. This may mean cutting down on non-essential purchases. Alternatively, it might be that your bills have recently increased, and so the extra costs are making your usual money management more difficult. In this case, it might be time to start looking around for different energy suppliers who can offer a cheaper rate. Often, services will be competing for your custom so they may offer introductory discounts or multi-year fixed rate contracts.

What if I think I can’t afford the loan repayments?

If you think it’s likely that you won’t be able to afford to repay a payday loan, then you should dismiss the idea straightaway and look at any alternatives you might have available. But first, you should approach your water or energy supplier to explain your circumstances and when you reasonably expect to be able to make the required payments. They may be able to arrange an alternative plan, like splitting any arrears over a few months to be paid back gradually. If your financial difficulty is expanding into other areas of your budget, or is continuing from month to month, you may want to consider speaking to a free debt advice charity who can help you reassess your budget and arrange a suitable way forward to repay any debt or existing agreements.

While your utility bills are a priority expense, getting into further financial difficulty by taking out credit will only make it harder to meet your financial commitments in the long-term.

Now and then, however, emergency costs and bills that were bigger than you expected do throw your careful budgeting out of the window and that’s when a payday loan could keep your life on track and smooth out the financial bumps.