For many, a car is a necessity. Where public transport is minimal or even non-existent, owning a private vehicle means having a connection to friends and family, as well as widening the opportunity for work and increasing accessibility to essential services like banks and grocery shops. When that vehicle breaks down or needs replacing, we aren’t always in the right financial circumstances to facilitate the additional costs. This can result in financial difficulty that expands over several months as other financial commitments suffer in the process.
So, what financial help is available when you need to purchase a new car or pay for an expensive repair bill, and you don’t have the funds available?
There are various types of credit to assist with these kinds of cashflow issues, from credit cards to bank loans. But one that falls into a grey area is payday loans.
A payday loan is a type of short term credit that can be borrowed for up to 30 days to help bridge the gap between paydays. Instalment loans are another type of short term credit which are similar to payday loans but can be borrowed for up to 12 months across multiple repayments. Both types of credit are primarily available as online loans making them accessible and quick to apply for.
Payday loans have a high interest rate which means they’re an expensive way to borrow for month to month purposes. They are designed to help with the occasional emergency costs that arise throughout the year, and they should really be reserved for circumstances where not meeting a payment or bill would result in a worse financial situation.
It can be difficult to know when to use payday loans because what is considered an emergency may be subjective. For example, if you use your car to get to work and it breaks down, you will probably need to repair the vehicle as soon as possible to ensure you don’t lose any income. However, if you have a second vehicle or you can cycle to work and already own a bike, then repairing the broken car is not essential, and could wait until your next payday. Of course, there are various reasons why you may need access to fast cash, but it’s important that you don’t make a snap decision. Taking out credit without considering your current and future circumstances could lead to bigger money problems.
Payday loans are for relatively small amounts, usually no more than £1000, so it’s unlikely you would be able to cover the cost of replacing a vehicle with the amount you can borrow. However, if you only need a little extra cash to assist with your current savings, or if you’re buying a cheap replacement vehicle to see you through until you saved enough to buy something more long-term, a payday loan may seem like an attractive borrowing option. You can apply quickly, have the funds the same day if you are approved, and you don’t have to worry about repayment until the end of the month.
However, as with all types of credit, you need to make sure you can afford the repayments and that borrowing the funds is a responsible decision in your circumstances. If the loan repayments will mean you are financially over-committed, then you may need to reconsider your options. You could:
There may be other types of credit more suited to your circumstances or borrowing needs as well, so it’s worth doing a little research and using comparison sites before settling on a decision.
Buying a car or replacing a vehicle unexpectedly is often an unwelcome event that creates cashflow shortfall and a few months of stress and worry about your finances. We can often be prepared for small emergency expenses but creating a saving fund for larger life events takes a long time, and we might not have those funds ready by the time they are required. While they are popular payday loans aren’t always a sensible way to borrow and they shouldn’t be used as a secondary source of income or to pay off other debts. Every borrowing decision should be carefully considered, and you should weigh up the pros and cons of different types of credit – even if you normally use the same loans or credit cards all the time.
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