If you have debts that you would like to repay, then you may consider borrowing money elsewhere in order to do this. A payday loan might be one of the ways that you might be thinking about. It is worth making sure that you are making the right decision though. You need to check out the cost, risk and ease of paying off debts like this.
Cost – the cost of debt is something that you need to consider. All loans have a cost and so if you pay one off with another, then you are replacing one cost with another cost. You need to think about whether this is something that you want to do and something that will help you finances. For example, if you have a cheap loan and you use an expensive loan to repay it then you will be paying out a lot more. However, if you use a cheap loan to pay off a dear one then this would be advantageous. This means that you will need to do some maths. You will need to think about how much the current loan costs and how much the new one will cost. Make sure that you look at the fees as well as the interest rate so that you are comparing the total cost of both. It can be tempting to compare the interest rate and assume that the one with the lowest interest rate will be the cheapest. However, if there are fees or charges as well, then this may not be the case and so you need to be sure. It can be worth getting in touch with the lender to ask them about this as they will be able to explain it. Otherwise you will have to look through the terms and conditions of the loan and that is not always very easy to do, both because locating them might be tricky and because understanding them is often hard to do. You also need to think about how long the loans last as if you are only paying interest for a short period of time it will be cheaper overall compared with paying it over a longer time period, even if the amount you pay each month is less.
Risk– changing to a different loan type might be risky. Loans have different ways of operating and some are riskier than others. With a payday loan you will have to repay the amount in full after a few weeks. You may like this idea because it means that you will clear the debt really quickly. However, there is a risk because you might be repaying more in the one-off payment than you would be if you had not swapped loans. This could make it harder for you to afford that repayment and therefore there could be a risk that you will not be able to pay it and have fees to pay on top. On the other hand, you might be able to repay it, but it may not leave you with much money for everything else and you could end up looking for another loan to help you. This means that it is so important to be honest with yourself when you are working out if paying off a loan with a payday loan is right for you.
Ease – it is worth looking at the process of repaying a loan with another. You will have to apply for a new loan and then repay the old one. It will take a series of steps and therefore you will need to be prepared for this. There is a risk, of course, that you might be turned down for the payday loan and then may not be able to go with the idea. The risk is small though, as most borrowers are accepted, but there is still a risk of not being able to borrow as much as you need. You will also need to check that there is no penalty for repaying the loan early. Some lenders will make a charge for doing this but some will not. The charge can vary as well, sometimes it is just a month’s interest other times it could be a huge amount of money. It is therefore really important to find out before you apply for the payday loan as you may end up finding that you will not get enough money to be able to afford your goal.
So, there is a lot to think about. A payday loan could be a good way to repay a loan but only if it is cheaper, that you are confident you will be able to repay it and if the process is easy. It is worth considering but you need to be sure that you put in the research and that you are confident in your decision.