When do you really need a payday loan and how to make a decision how much to borrow?


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If you have decided you should take a payday loan you might wonder how much you should take. You should not take too much because that would be money lying around piling interest, and must not take too little because instead of sorting your money issues you would simply owe money without getting a job done. What if you are getting paid weekly, fortnightly or monthly? The size of the loan would affect your budget after next payday so make sure you make an informed decision.

Payday loans are popular because they do not create a bond to a lender or broker like credit cards do, so your decision would not affect your yearly budget as bad as a credit card could. However, the danger comes when people lend money repeatedly and end up paying a lot of money because of the interest. This could happen when people do not take enough money and end up having to get another loan next payday or the following month.

A bigger loan could mean making sure that there is enough money, but is it worth paying back interest on money you do not need? It is important to remember that the repayment will come out of your next payday cheque, which means that you would have less money to get by. For example, if we take £200 from Wonga which we would repay in 14 days, we would have to pay back £234.27 (Wonga.com, August 2014). If the next payday cheque is worth £950, after paying back we would have £715.73 until next payday. If we only need £150 for the same repayment period, we would pay back 177.27, leaving us £772.73. The £50 less we took the second time actually would be worth £57 to the lender, or 14 %. So is it really worth it?

There must be a balance between the money you need and the money you would pay back. This is affected by the time you would need to pay back, you would generally pay more the longer you need to pay back, because the lending company takes a risk. If you take money and want to pay back as little as possible, you would naturally try to pay back sooner. However, you should be realistic about the time you would need to pay back. Late payments are subjected to fees (August 2014: Wonga – £20) so you are likely not to save money but spend much more than you should, so make sure you would be able to pay back before the date you specified in the application.

The amount of money you take is important but you should always consider what your need and what the options are. There are plenty of alternatives and different companies so make sure you have done a good research and have a good insight of things before doing a transaction. If you take the wrong sum of money and it is simply not enough for your purposes, you will end up paying interest on money lying around! Even worse, you might end up taking another loan to cover the difference. On the other hand, having too much means paying interest when you really do not have to and it is the highest interest on a loan you could pay. Be realistic! Make sure you are applying on the right date and paying back before the due date. Be in control of the transaction.

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