Payday loans can be incredibly useful resources when you need cash fast, with little fuss and no delay. For those with poor credit ratings and in desperate need of ready money, they provide a convenient and efficient service and certainly can come in handy in certain situations.
Equally, there are certain other situations for which they are entirely not suitable. Here are ten such things you would do well to steer clear of payday loans for.
Brits love their holidays. In fact, more than £16 per week is spent on holidays.
Payday loans are a great source of fast cash in a quick lump sum – but they should only be used in moderation and only be used for emergencies. Taking advantage of a cheap online flight deal which will expire next week does not count as an emergency. Using a payday loan to fund a weekend getaway will more than likely have you coming home to debt.
2. Luxury Items
Similar to holidays, that new iPad, surround-sound system for your television, laptop or other unnecessary trinket is not something you should take a payday loan for. If you can live without it, it’s not an emergency. If it’s not an emergency, you don’t need a payday loan to pay for it.
3. Buying Gifts
Research from Peachy has found that most people would consider using a payday loan to finance a gift and, while I don’t wish to sound heartless, this can be especially problematic come Christmas-time, when you effectively have to buy birthday presents for everyone you know all at once.
However, your family and friends love you. They will not mind if you can’t afford to get them that extra special something – and they certainly won’t want to see you become in debt on their behalf. You can also make something by hand or show your love in another way, as well.
4. Paying back Family and Friends
Owing money to friends is not ideal and has been known to ruin friendships in the past. However, if your bond is really that strong, they will understand. Talk to them and explain your financial difficulties, before exacerbating those difficulties just to retain the status quo in your relationship.
As for the Bank of Mum and Dad, well, that’s supposed to be drawn upon… especially in younger years. Of course, don’t abuse their charity, but don’t kill yourself financially just to please them. If you do, they will most certainly not be pleased in the long run.
5. Entering into a Contract
Whether it’s a mobile phone contract, an internet deal or a satellite TV package, an ongoing obligation is not something you want to be relying upon a payday loan for. Payday loans should be used as occasional, one-time problem solvers. If you become dependent on them, you will begin hemorrhaging money on an increasingly alarming scale.
6. Paying back a Previous Payday Loan
You don’t want to be drawn into a vicious cycle here. If you are lending more payday money just to pay back your previous loan, you will accrue greater and greater interest fees and the amount you owe will never decrease. If you are struggling to pay off a payday loan, the worst possible thing you can do is to start another one.
7. Avoiding Pawning Possessions
Many people see pawning their precious family heirlooms or cherished jewelry as a last resort option. Even less sentimental items, like laptops, TVs and iPads can be difficult to part with due to their usefulness and functionality. However, taking out a payday loan when other options exist is adding to debt needlessly.
Indeed, one in four people who took out payday loans eventually turned to their “last resort” regardless, according to a study by The Pew Charitable Trust. As such, you might have to pawn your beloved items anyway, so bite the bullet and avoid adding to your debt by taking out a high-interest loan.
Needless to say, gambling is a bad idea of the best at times. The game is rigged; the house always wins. Not to say there aren’t winners… just very, very few of them, and almost no consistent winners.
So, from square one, we can say gambling is counter-productive. However, gambling with money that is not even yours is financial suicide. If you have to take out a payday loan, make sure it’s for something that is absolutely necessary. A flutter down at the race track or on the weekend’s football action does not qualify.
9. Business Investments
Whilst investing money in a business is a far more praiseworthy and sensible pursuit than gambling it away, again, it is a very illogical move to take out a payday loan to do so. Payday loans are intended for short term repayment – the opposite of business investments.
Investments are basically long term gambles. You put money (and hopefully, a significant amount of effort) into a venture and hope that eventually it will pay dividends. The eventual part is the key phrase here… there is no way you will see a return on a business in the time allocated to pay off the debt.
Furthermore, payday loans are often small amounts, entirely unsuited to business investments. Find a better way to raise the cash, through a bank loan, subsidy or long-term savings plan. Or, if you can’t, perhaps shelve the idea until you can.
10. Preventing Overdraft Fees
Many see incurring overdraft fees as the be-all and end-all of debt management. While sometimes it may be smarter to take out a short-term loan to avoid accruing fees, often the interest and size of the fee is favorable in comparison to the high rates on payday loans.
Do your homework before committing to a payday loan to see if you’re actually saving the money you think you are.
It’s always best to do a little research before you leap. Doing so can save you pocketful’s of cash in the end.
Do you have any tips on what you shouldn’t be taking out a payday loan for? Let us know below.