When should you use (and not use) a pay day loan?

Most people will have had times when they have spent their salary a little before their next pay day – perhaps they over indulged just after you were paid, perhaps they had unexpected payments to make, perhaps there was an emergency.   Whatever the reason there are many ways in which you might borrow money to see you through to your next pay day.    One way of getting extra money on a short term basis is via a pay day loan company.


There are many pay day loan companies on the market.  It is important to shop around because different lenders will have different terms.  Also some lenders will be more responsible in their lending practices than others.    A relatively new entrant to the South African market is wonga.co.za.  Wonga has been established in the UK since 2007 and have lent over 7 million loans.   Take a look at their website – you will easily see how pay day loans work.  You put in the amount you need to borrow and the length of time you need before you pay it back (usually your next payday) and you will be told how much you will pay overall for the loan.


Pay day loans can be a good way to get finance until your next pay day.   However, it is unwise to use them to get money to pay off an existing debt.  They should not be used for long term borrowing.  Long term borrowing via a pay day loan company is not a good idea because the interest rates chosen by such lenders are set at rates suitable for short term loans.   If you use a short term loan for a long time interest will mount up and you might find it difficult to pay off your debt.   That said there are advantages and reasons why a pay day loan might suit your borrowing needs.


Poor credit score: Pay day loan companies are mainly concerned with your employment status so people with difficulties caused by their credit rating may find that they can get a pay day loan when other forms of finance turn them down.    This is an advantage for many borrowers.


Quick: If you haven’t got an alternative source (like a credit card) available for borrowing already set up when you need the loan you might not have the time or may not want the hassle of waiting or the paperwork.  Pay day loans are quick with minimal administration – they can sometimes be obtained in about 15 minutes.


24 hours a day:   Unlike many lenders with online approval offered by some pay day loan providers you can apply for a pay day loan any time.    You don’t have to have a sleepless night worrying about whether you will get a loan – you can apply as soon as you realise you need financial assistance.


Improve your credit rating:  If you use a pay day loan and keep to your side of the bargain (e.g you pay the loan back when it is due) you can actually improve your credit rating.  This is because the lender will report your borrowing and it will be recorded.


You certainly should not use a pay day loan more often than you really need to.  If you are using them regularly you may have an issue with debt or could do with some help with your budgeting.   Only use pay day loans when necessary.

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