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Is an Instalment Loan Better than a Payday Loan?

There are now different options for anyone with a bad credit record or who wants a quick loan, with regards to short term loans. The option used to be just a payday loan which had to be repaid in one instalment on the person’s payday. However, there is now the option of a loan that can be paid back in instalments and this can have a lot of advantages over the traditional payday loan. It can be worth finding out more about both types and thinking about which could be the most useful for you. Consider the following things:

Cost

The cost of a loan normally will increase the longer you have the money. This means that if you borrow money for just a few weeks and pay it back in a lump sum, which is what tends to happen with a payday loan, then the interest will be kept to a minimum. However, if you repay over a number of months, then you will owe the money for longer and it will be more expensive. There may be exceptions to this as all lenders have different rates and ways of charging, however normally this will be the case. This means that you might think that going for a lump sum repayment will be the obvious option as it will be cheaper. However, it is worth thinking beyond this and imagining hat might happen to the cost if you cannot afford to repay.

Ease of Repayment

If you have just one lump sum repayment, then you will have to find a big chunk of money to pay in one go. If you spread the repayments over more than one month, then you will find it easier to manage the cost of the repayments. This is important because of the cost of missing a repayment.

A missed repayment can cost a significant amount of money. It is good to take a look at the terms of the loans that you are considering to find out how much this will be. Although payday loans are now regulated and the amount that they can charge is capped, it can still be a significant chunk of money. You are much more likely to not be able to able to afford a repayment if it is a lump sum compared to smaller regular amounts. Therefore if there is a risk of you not paying the loan back in full when required, it could end up costing you more money, than it would had you gone for the dearer loan that allows regular repayment.

Term

You may find it easier to manage your other expenses as well if the loan is repaid in smaller amounts over a longer term. If you have to repay one big chunk, then you could find that you will have no money to cover the cost of your other monthly expenses and could struggle to find what you need towards the end of the month. This could mean that you end up having to borrow more money to be able to buy food and then that will cost you again. If you can spread the payments it should be easier to manage and then you will be able to avoid having to borrow again.

Stress

However, you may find that having a loan hanging around for a long time wil make you feel stressed. You may worry about owing the money and just want to get rid of it as soon as possible. In this case, it could be better for your health to get it paid back as soon as possible. In this situation though, you will need to make sure that you budget really well to ensure that you can manage with less money so that you do not have to borrow again due to not having enough left by the end of the month. It can be wise to think about what you might be able to do to make it easier for you to manage. You may be able to cut back spending in some areas, sell things to make extra money or fid additional sources of income. This will not be as easy as it sounds, but if you concentrate and spend time thinking about it, hopefully you will be able to find a solution that works for you and fits around your life.

Should I pay off all my Loans as soon as Possible?

If you have an accumulation of same day loans, then you could feel that you should try to pay them all off really quickly. This could save you money, in some cases and it could reduce any stress that you have as a result of being in debt, but it is something that you should think hard about. Consider a number of factors when you are making your decision.

Cost

Obviously the cost of a loan could be a big reason for you wanting to pay it off early. Most loans will charge interest each month on the outstanding balance and if the balance is smaller, then the charge will be lower, meaning that the cost of loan will decrease, Therefore if you pay off a chunk of the loan, then the interest charged will be lower.

However, with many loans there is an early repayment fee. This means that if you do pay off a chunk of the loan, you will have to pay a charge for this. This can sometimes just be a small admin fee, but if you are locked into a fixed interest rate or other term contract then the fee could be much larger as the lender may be trying to stop you moving to a cheaper lender or a cheaper loan that they offer. These might be particularly high with mortgage lenders. It is always wise to check and then calculate whether you will still save money by paying some off early. You should be able to contact the customer services department of your lender to find out.

Stress

For some people being in debt can be really stressful. It could be because they are worried about the amount of debt that they have outstanding and hanging over them or that they struggle to find the repayments each month. Stress is not healthy for anyone and so if something can be done to reduce it, such as paying off the debt more quickly, then this can be great. Of course, it may be necessary to take some steps in order to free up the necessary money to be able to do this. It could mean taking on extra work or working more hours or even changing jobs to a better paid one. It could also mean that you will need to cut down spending in other areas, if you can. Think about whether there are any luxury items that you buy which you could cut down on or whether you could compare prices on things that you need in order to save money that way. Some changes will be more significant than others but every place that you can cut down will make a difference to how much money you have available to pay off your loan.

Type of Loan

The type of loan that you have will also have an impact on whether it is worth paying it back early. For example, if you have a fast loan cash advance then you will only have to make repayments if your salary is above a certain threshold and any remaining balance will be written off after thirty years. This means that if you choose to repay it early, you could end up paying back more than necessary. Round three quarters of graduates do not repay their whole loan, so unless you have always been a very high earner and can guarantee that you will be until the end of your loan term, it is better not to pay it off early.

The same can sometimes happen with mortgages. It can be better to invest money and gain a lot of return compared with paying the mortgage back. This only happens when the mortgage rate is low and the return on your investment is high. It is unlikely that savings would ever earn more than you pay out on a loan, but investments can generate a good rate. This will depend on the investment of course and as investments can be risky, it is worth doing a lot of research before taking one out. Most people would take the advice of a financial advisor who would show them how well an investment had done over past years and predict how well it will do in the future as well.

Is it Wrong to Borrow Money?

There are many people that think that all forms of borrowing are wrong. This might be because they have got into debt trouble in the past or that they have seen other people struggling. It is true that debt can be a big problem for some people. But it can also be useful for some people as well. Therefore it is worth thinking about debt as being either good or bad, depending on the type of debt and what it is being used to pay for.

Good Debt

Good debt is often thought to be a debt where you are bettering yourself by getting it. This could be something like a student loan, where you will not only be improving your chances of getting a better paid job, but you will also only have to repay it if you earn enough money to do so. Another example could be a mortgage where you end up owning a property that will usually increase in value which you are living there. You save money in rent and although home ownership has additional expenses, it will mean that you end up with a property that you can sell or leave to your children and then pass that wealth on.

Debt is also considered good when you have done a lot of research into it and thought hard about whether you think that you can afford the loan and the repayments. Also comparing different types of debt and different providers so that you can be sure that you are getting the best possible deal on your loan and not paying more for it than necessary.

Bad Debt

Bad debt would be a loan where you are borrowing money when you do not really need to. Perhaps if you have some savings but you take out a loan anyway. It could be that you top up your savings account with a loan, do not pay off your credit card in full, even though you can afford to or borrow money for unnecessary and luxurious items.

Also taking out a loan when you have not really researched would be considered to be bad debt. Perhaps borrowing more than you need, borrowing at a very high rate or just taking the first loan you come across without finding out more about what is available. Borrowing can be tricky and it is not always easy to understand your options and which is the best for you. However, a financial advisor could help you with this. If you cannot afford to pay an independent financial advisor, then your bank is likely to have one that you can talk to. They will only know about the loans offered by their company, but they will be able to explain to you about the different types of loans and which would be the best for you.

Deciding if Debt is Good or Bad

Sometimes it can be difficult to decide whether the debt that you are considering will be good or bad. This is because not all situations are clear and easy to assess. For example if you need some money to buy clothing for a job interview and have to borrow it as you have no spare money, but there is a chance you will not get the job, is it worth it? You will of course be able to use the outfit for other interviews, but it is still a gamble that you have to decide on. Often it can be a very personal decision with regards to your own circumstances. It can be wise to discuss it with someone as they may be able to help you see it from a different perspective. There are debt helplines that you can use as well and they may be able to help you make up your mind as well.

So although not all borrowing is wrong, it is up to you to find the right sort of debt for you. Make sure that you spend time thinking about your situation and what type of debt and amount you can cope with and manage the repayments for as well as the type of loan that will suit the circumstance that you are in.