Cash loans – often referred to as payday loans too – represent a quick way to get some cash on your hands. Whether you rent is due two days before getting paid, your car needs a quick fix or you have a terrible toothache that just cannot wait, cash loans are the way to go if you have no savings. Practically, you come up with an application over a few minutes, get accepted and have the money transferred to your account over a couple of hours.
It sounds easy. Cash loans are pretty straightforward – no funny costs and fees if you read the terms and conditions. Some people may end up in trouble though. Such lenders are now regulated by the FCA, so they follow some strict rules. It is up to you to pay attention to these rules too – as a consumer.
At this point, it is critical to understand how much you can afford to repay on a monthly basis. This is where most people struggle. Even if it feels tight, some people see it differently – they will see what they will do. They go with the flow and adapt on the way. Bad idea. So, what should you keep in mind?
Monthly Payments Versus Loan Duration
It is hard to tell how much you can pay back each month if you do not know the duration of your loan. Ideally, you should pay everything back once you get paid, but most people do it over a few months, especially if the amount is more than just £100.
Your monthly payment depends on the duration of the payment. If you borrow £500 over five months, you will pay £100 a month, as well as the interest. If you get the same amount over one month, you will pay a lower interest and the £500 in one go.
When to Reject a Loan?
Say you want to borrow £500 over four months. You do some calculation – your income, expenditure, potential extra expenses, leave yourself some room for extras. You end up left £25 short a month. You probably imagine you can cut on some expenses – no more takeaway and restaurants, but more cooking at home. Forget about going out three times a week – do it twice only.
Either way, if based on your current lifestyle, you are even or at least £1 short, you should refuse the payment. Some lenders will offer it to you, yet the risks are too high and you may end up with more debt. In other words, you dig your own hole, so start negotiating.
How to Make a Cash Loan Affordable?
Instead of making compromises or hoping for the best, simply ask the loan provider to give you more time to repay the loan. You might be able to get the same amount of money. But paying over more months will reduce the monthly expense. Therefore, you are less likely to get in even more debt.
More Time versus Higher Interest
It is important to know that expanding your cash loan over more months will decrease the monthly payment. It sounds like a more affordable choice, but a longer time will also bring in a higher interest rate. Proportionally, while the monthly payment is lower, you will pay more money back in the long run.
Bottom line, cash loans could be a fresh breath of air when you struggle with an emergency. But on the same note, they can also get a bit risky if you are not responsible. The secret is to take your time and plan your loan in the smallest details.