Sometimes, your finances aren’t enough to allow you to make it to the end of the month. Despite all the careful planning, something unexpected like a car repair , or doctor’s bill pops up and you’re forced to scrape a few cents from your pocket to make it to payday. If you’re in a pinch and need additional cash to get until your next paycheck, you may want to consider the possibility of a payday loan. In the end, they’re touted as the ideal solution for such a situation and are the clear go-to option, aren’t they?
Payday loans aren’t as affordable and easy options that many people think they are. We will explain why payday loans in South Africa are often costly and should be avoided. We will then discuss another option.
What is a Payday Loan?
Payday loans are short-term and unsecure loans that are designed to provide you with quick access to money in times when you require that more to get to the final day of the month. They are usually repaid within a couple of weeks. The payment amount is taken out of your account.
THE COST OF A PAYDAY LOAN
Since payday loans require the repayment of a small sum soon after they’re taken out, it’s possible to be deceived into thinking they don’t carry much of a risk. However, the costs and interest rates associated with these loans are more than almost any other type of loan, which makes them an extremely costly option. In South Africa, borrowers can be charged up to 5% interest per month, which may not sound like a lot. However, when you add administration charges, you could end up paying over R400 in interest and fees on an R2000 loan.
Due to the high cost payday loans will not help you resolve problems with cash flow, particularly if you’re already having financial difficulties. You’ll be putting yourself in a more difficult financial situation when you take out a loan. The cost of the loan will increase, which will cause you to take on more debt. If you have had multiple debit transactions prior to the payday loan the repayments could drain your account funds that you could have kept for a future debit order. A rejected debit card is almost certain to affect your credit score and could make loans in the future more expensive.
I NEED MORE MONEY
If you absolutely need money then a personal loan could cost less than a payday loan. In contrast to payday loans that are based on a fixed rate of interest they are designed to the needs and risk of the individual borrower. A personal loan is more affordable if your credit score is either above or below. Of course it’s important to calculate the total cost of a loan before taking one. In addition, you must be sure to take out a loan from a reputable lender, who will evaluate you correctly and ensure that you get the best loan for your requirements.
PREVENTION IS BETTER THAN CURE
It’s always better not to need a loan for a short term. This means that you need to make sure you have enough money even in the event of emergency expenses. It’s not an easy task. South Africans don’t have much savings. However, it is important to save money to cover the eventual rainy day. To avoid this position in which you’ve got nothing remaining at the close of the month to cover any unexpected expenses, revise your budget to ensure that you can start saving for an emergency fund.
