When I was younger I used to quite enjoy the challenge of scraping through from payday to payday, that last week when you had one tin of beans left and a bag of rice and knew you were going to be hungry for most of it. It was an achievement to get to the end of the month without having actually broken my huge overdraft limit, still in insane amounts of debt but at least not actually getting threats from my bank.
To me, being more than two grand overdrawn as a permanent thing wasn’t a problem. When I got paid and went to only being one and a half grand overdrawn I didn’t see the red figures, just the “available to spend” figure – a shiny fresh one thousand pounds, courtesy of my low paid thankless job. And I lived like that for years.
In my day of course there was no such thing as an open door loan. If there had been, there would have been times I could have used one to great effect – those months in which the two ends of my accounting didn’t quite meet as I expected them to because my car broke down or someone died and I had to pay for petrol to get to a funeral.
In situations like this (whatever the actual state of your bank account) the open door loan can help you get hold of the small amount of shortfall you need before your next pay check comes in. I say small advisedly – because that’s exactly what the payday loan is designed to do, cover a very small discrepancy between what you have and what you need, which you will repay with interest when your pay check clears.
Think about it this way. The pay day loan is like the bit of your tight budget you would already have set aside for the emergency, if you knew in advance the emergency would be taking place. And when no one else will lend you the money, extend your overdraft for example, to cover it now the emergency has happened, you need to get the cash from somewhere. So you borrow it from a short term loan provider and pay it back as soon as your pay check comes in, plus the interest it has accrued.
The pay day loan is designed to fill a very short gap indeed, with a very small amount of money. This can be a good option when you have an unexpected and unavoidable expense very close to payday. But be aware, when you talk about the open door loan you also have to think in its terms – short payment periods and long interest rates – before you really understand whether it’s right for you or not.
On average the loan commands an interest charge of £30 in every £100 – provided the full amount is paid back within that first loan cycle. The loan cycle being defined as the length of time it takes for your pay check to clear. To cover the loan, its interest and all the rest of the expenses for the next month, budget for borrowing an amount you would normally be able to spare from a fresh pay check anyway – in other words the money you would have set aside for that emergency had you known it was going to come along.
By borrowing money in this short term fashion you can (for example) avoid unauthorised overdraft fees or the simple embarrassment of nbot being able to go where it is you need to be. Try to budget your perceived needs sensibly against your future financial situation though. Borrowing too much money from a short term lender (too much is anything you cannot comfortably pay back, with some nifty budgeting, in the next pay period) defuses the convenience of the loan and effectively puts you in a position where you are trying to do something with a product unsuited to the purpose you have in mind.
For more information on the proper ways to use a short term loan get in touch with us!!