What's the point in payday loans?

NewFolder

Asking this purely out of curiosity, I'm not thinking of getting one!

Is there any situation where a payday loan would be a good choice for getting credit?

I can't think of any. If you want short-term credit, surely a credit card would be better? Or if you want a large amount of money surely a bank loan, or even a high limit credit card would be better? Both of these options would be cheaper as the credit card is interest free if you pay it within 56 days and the bank loan would have significantly lower interest and a longer period in which to pay it back.

With this in mind, is there any situation where a payday loan would be a better solution to a bank loan or credit card?

mjm3346

For one thing speed, I doubt you could get a credit card in your hand within 15 mins.

matttye

The only thing I can think of is if you imperatively need money (life or death) on a day when a bank is closed. Or if you're refused a loan/credit card.

It would take unbelievably extreme circumstances for me to recommend someone take out a payday loan.

People really should put some money away in an emergency fund rather than buying 300 pairs of shoes, handbags or all the latest gadgets.

imoneyop

matttye wrote: »

Or if you're refused a loan/credit card.

This is probably the main reason - they are the last hope (if you want to avoid sledgehammer Sid and his associates) of the desperate.

NewFolder

imoneyop wrote: »

This is probably the main reason - they are the last hope (if you want to avoid sledgehammer Sid and his associates) of the desperate.

Surely if you're in that bad of a financial situation the last thing you need is more debt though.

Like if you use it to pay a bill one month, it'll be worse next month as you'll have the next bill, plus your payday loan to pay.

DCFC79

NewFolder wrote: »

Surely if you're in that bad of a financial situation the last thing you need is more debt though.

Like if you use it to pay a bill one month, it'll be worse next month as you'll have the next bill, plus your payday loan to pay.

People who are in a dire financial situation dont always see the logic of using pay day loans and see it as a solution but when the payment is due to be made they dont have the funds to cover it so then borrow again.

John1993_2

They can work out cheaper than an unauthorized overdraft if genuinely used for a short-term need.

It's hard to imagine ever being so bad with money that it's necessary, though.

Weird_Nev

NewFolder wrote: »

Asking this purely out of curiosity, I'm not thinking of getting one!

Is there any situation where a payday loan would be a good choice for getting credit?

I can't think of any. If you want short-term credit, surely a credit card would be better? Or if you want a large amount of money surely a bank loan, or even a high limit credit card would be better? Both of these options would be cheaper as the credit card is interest free if you pay it within 56 days and the bank loan would have significantly lower interest and a longer period in which to pay it back.

With this in mind, is there any situation where a payday loan would be a better solution to a bank loan or credit card?

Imagine that:
You have zero money in the bank. Zero. No overdraft facility.
You do not get paid for 6 days.
You have a tub of margarine and a pint of milk in the the fridge, that's all.
You need to pay the child minder so you can get to work,
You need £20 to feed yourself and the child.
You cannot get a credit card.
You have nothing non-essential worth pawning.
Your family and friends are in a similar position, so can't (or won't) lend to you.

It will cost you £70 to get to pay day.

What do you do?
Go hungry?
Let your child go hungry?
Beg?
Ask for a pay advance and so admit to your employer you're in dire straights?

Or do you get a pay day loan?

This is a line of credit that is not in the armory of most people, because most people do not find themselves in the situation described above. But some people do, and I do think there is a valid argument that the managed and regulated payday lenders keep people out of the clutches of the doorstep loan sharks. Remember, credit cards and loans are not available to many people and are not really appropriate to cover short term funding gaps. Why get a 6 month loan to cover 1 weeks worth of expenses? That could actually work out more expensive - £100 at 20% APR over 26 weeks versus £100 at 200% APR over 1 week.

I agree there are probably better solutions: A crisis loan from the council, seeking out a friend who can help, approaching an employer. However, pride keeps many from seeking these solutions and may push them towards Cash-loans-fast-4-u.con.

As an example, my wife is a high earner by most standards, but she cannot get a credit card. The only credit she has ever had is a phone contract and a mortgage. Go figure. If she found herself in a dire situation, how would she obtain money fast?

worried48

I've used Wonga twice - on both occasions for five days only. It's not impossible that I might have to use them again. In my case the reasons were both the same, bailing out my husband's business.

The first time, a customer had assured us that she would be making payment immediately by bank transfer (this was negotiated in order for her to have a discount) and like a fool I believed her and paid a supplier who needed paying urgently but probably could have waited a few more days. After a few days I called the customer to ask where her payment was only to be told that she had decided to pay by card after all. As the item she wanted had to be ordered, and we cannot legally debit anyone's card more than 48 hours before sending the goods, there was nothing we could do but wait. It was a large amount that she was due to pay and this really caused us huge difficulties. The Wonga loan was cheaper than the returned direct debit charge would have been for the loan payment my husband needed to make.

The second time, it was take out a Wonga loan or default on the VAT payment. Defaulting on the VAT payment would have caused us a lot more difficulties because there are penalties for missing payments.

We are self-employed and one of the difficulties with that is that there is a level of unpredictability that makes budgeting extremely difficult

Cycrow

I can see some reasons for using a payday loan, ie you have an emergency and need some money straight away, like a broken car that will prevent you from getting to work, or something like that.

the problem is that this will only occur if you have no available credit to use (bad credit rating or maxed out credit) and no emergency fund available.

which would indicate they are not very good with budgeting so not really the best people to be getting short term loans

Thrugelmir

Cycrow wrote: »

which would indicate they are not very good with budgeting so not really the best people to be getting short term loans

Pawnbrokers have been around for hundreds of years. People haven't changed.