There can be many circumstances where you are cash poor, and need money – fast. It could be an unexpected or emergency medical expense, or a bill you weren’t expecting, or had simply forgotten about, or perhaps it’s a combination of things and your financial situation has gotten on top of you. In any case, you need an immediate injection of cash which you don’t have access to: is an emergency loan the answer? Here are some points to consider.
Emergency or ‘Payday’ loans can be a good solution to a sticky situation. There are many reputable companies which will issue you a quick loan, often on the same day, on the understanding that you pay the loan back on your next pay day, and using your next pay cheque as a guarantee. These loans are for small amounts only, and are available to people with low credit ratings who may not be eligible for any other type of financing.
However for this reason, Payday loans can also be quite dangerous. There can be a trap of continually borrowing against your next pay cheque, either to service other debts or to meet basic expenses, meaning that your pay cheque is essentially spent before you even get it and you are always running out of money before pay day. This is a precarious way to live, and the answer is not to keep borrowing, but rather get your personal finances in order with good planning and strict budgeting.
However, in genuine emergency, one-off situations when you have a realistic plan to pay the loan back in a way which will not compromise your upcoming living expenses, Payday loans can be a good and sensible solution. There are many different payday lenders so be sure to do your research – go online and compare each one. You should look for factor such as the loan amount offered, interest, fees and other conditions of the loan, and how quickly you can receive the money.
In Australia, small loans to be repaid between 16 days and one year are limited to charging a 4% interest fee on the loan amount, and a 20% ‘establishment’ fee. So while the interest is relatively low, you will have to pay back a lump sum amount in addition to the money that you originally borrowed that can be quite significant. If your establishment fee is 20%, that means on a loan of $1000 you will actually pay back $1200, plus interest – that’s quite a difference! So make sure you check out these fees and make comparisons before signing up for a Payday loan.
You can also use a credit card as an emergency source of funds. Many cards have a ‘cash advance’ function which allows you to access cash at an ATM or by electronic transfer against your credit card balance. Even if you don’t already have a credit card, it can be relatively quick and easy to have a new credit card approved, as long as you have a reasonable credit rating.
If you need advice on managing bills and debts, the Australian Government offers a free service where you can call 1800 007 007 and talk to a trained financial counsellor, who will talk through your financial situation and offer you advice on how to handle it.
In some cases, you may be able to negotiate with service providers and debtors to pay your bill late, once your pay cheque comes in. For example electricity, gas, water and phone providers often offer extensions on due dates of bills if you call them and ask. If you receive Government benefits you may also be eligible to receive an advance on your Centrelink payment to meet certain payments, again you just need to call Centrelink and ask. These alternatives to seeking an emergency loan, if accessible and if they will meet your needs, could be a better solution.