If you are thinking of taking out a payday loan, one of the first question you might ask is how much will it cost. We tend to decide whether we are going to buy things or not based on the cost and so it is a perfectly legitimate question to ask. This is not a simple question as the price will vary depending on a number of factors.
- What the lender charges – the amount a lender charges will depend on a number of factors. They will have costs and they will decide how much they are going to charge you based on this. Some lenders will just end up charging less than others and some will be more expensive. You may want to compare the costs of the different lenders so that you can find the one which you feel will offer you the best value for money. It is important to realise that it is not just the cost that is important when choosing a lender though. You need to be able to feel happy with them, trust them, feel they provide a good customer service and a loan which has terms that you are happy with.
- How long you borrow for – As you will be charged interest daily on your payday loan, the longer you have the loan for, the more you will pay. This means that it is wise to work as hard as you can to keep your borrowing period as short as possible. If you can wait some time before you borrow, maybe even if it is just a few days, it will mean that the loan will be cheaper. Even saving just a little bit will make some difference and so it is worth it.
- How much you borrow – Interest is calculated based on not just the amount of time that you borrow for but the amount that you borrow. The more money you borrow; the more expensive it will be to borrow it. This means that it is important to make sure that you borrow as little as possible. If you can, use savings and other money that you have before you borrow so that you do not have to borrow more than necessary. Also think about whether there is a cheaper alternative to what you are buying with the money which might mean that you can borrow less.
- Whether you repay on time – it is important to make sure that you repay the loan when it is due. In some cases this just might not be possible, perhaps if you spend too much money before the loan payment is taken out or if your pay is not enough to cover or the pay arrives late. In any circumstance where you are not able to repay on time you will find that there will be additional charges to pay. These can significantly increase the cost of the loan. This means that it is really important to make sure that you do repay the loan on time. You need to look carefully at your finances and do everything you can to make sure that there will be enough money available. This will probably mean that you will need to budget and only spend money that is totally necessary. You might even need to think of some ways to earn more money so that you can afford it. Maybe you will be able to sell some things to get a bit of extra money or do some extra hours at work. It is worth thinking about what you might be able to do in case you are in the situation where you need to do this.
It is worth knowing that a lender will normally have a calculator on its website where you will be able to work out how much the loan will cost you. If you put in how much you want to borrow and how long for, it will tell you how much you will have to repay in full. If you take away the amount you are borrowing you will be able to calculate the cost of the loan. Once you have this figure, not only is it useful for comparing the cost with other lenders, but you will be able to use it to work out whether you think it offers you good value for money. Consider whether the item that you are buying with the loan is worth this extra cost that you will have to pay if you want to get it. Imagine the item you are buying costs its price plus the cost of the loan and think about whether you would buy it if it cost that much. It may be that it is an emergency purchase and you have no choice, but if it is not then think about whether you want to pay this much for it.