Does a Payday Loan Offer Good Value for Money?


It may seem a little odd to think about financial products in terms of offering value for money but we really should be looking at everything like this. We need to assess the loan and then we can decide whether taking one out is a good idea. This is a personal assessment though as you will need to think about what you will gain from the loan personally and whether you think the cost is worth that gain. To do this you will need to go through a number of steps.

  • How much is the loan?  The first step is to find out how much the loan is. This can normally be done on the lenders website where they will have a calculator that you can use to work out how much you will have to repay in total based on how much you will be borrowing and how long for. It is wise to compare a number of lenders as they will vary in price. From this figure, you will be able to calculate the cost of the loan by taking away the amount that you are borrowing form the total you need to repay. This is a better way than using AER or other interest rates as they can be unclear and the maths can get confusing.
  • What is it for? You then need to think about what the loan is for. Consider the cost of the loan and whether you are happy paying that extra money so that you can have the item. It might be that the item is something that you really need and therefore cannot really go without and so you may just have to put up with paying the extra money. However, if it is not for an emergency purchase then think about whether you are getting value from the loan. Consider whether you feel that the item will really enhance your life and if you are happy at paying the loan cost as well as the value of the item in order to get it.
  • Do I need the item now or can I save? It is worth asking yourself how urgent the purchase is. If you can wait and save up for it then this could be a sensible thing to do. This is because it will not cost you so much money and you will therefore get better value for money for your purchase. Saving up can be tricky, but if you set up a direct debit to put some money into a savings account just after you get paid, then it should be easier.
  • Do I like the lender? It is good to find out more about the lender before you take out the loan. You may already know a bit about them, but if not then ask people if they know anything about them, look carefully at their website and also do research online. Finding out more about them will allow you to decide whether you feel happy getting a loan from them and giving your money to them. It may be that you are happy and feel they deserve your money or that you feel unsure and would rather go with another lender. How you judge is really up to you and you will get a feeling about them as you gain knowledge and be able to make a judgement.
  • What are others saying? Asking friends and family, as suggested above is really important. It can be difficult to admit that you are borrowing money but getting advice from those that are close to you is really valuable. They will be able to give you an unbiased opinion about lenders that they have used and let you know whether they would recommend any or advise you to avoid any. If you are not comfortable with this or find it is not useful then you can look online. Looking on personal finance message boards, blogs and websites can give you some information. There is more chance of bias online, so carefully look at a big selection of sites and think about whether you think the information is likely to be correct or not.
  • How do I feel now? Once you have gathered all of this information you should be in a position to decide whether getting a payday loan will be good value for you. It may seem like a lot of work to do, but it should be a big decision, as any loan decision should be. It will cost you money and you are taking on a risk, that if you cannot repay, you will have to pay out even more. It is therefore sensible to think hard about whether it is the right decision for you and whether the loan that you are considering will give you good value for money.

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