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Affordability is always very important when someone takes out finance. People may not actually understand that there are a variety of different products people can take out when they need money quickly. People can look at a possible payday loan over a very short term of usually just one single month or an instalment loan where they will repay the debt over a number of months.Credit cards can also be used to make purchases or withdraw required money but on credit this time. Car finance which can sometimes be interest free for periods is another common type of finance available for customers to enjoy. Always make sure all of those products are affordable before the application is even made as missing repayments can nearly always lead to severe negative consequences for that person. Before anyone looks further at the finance they have to consider a few things such as do they definitely need that loan or finance in question and if they need money how much realistically are they looking to borrow. They will then have to decide the lender to apply through and they will be left with a large choice on this option. In this article I am going to explain just how important affordability is on any finance product, will then explain how to try to budget for the products and then compare a couple of different loans out there to see which one is more realistic for people to obtain and then successfully manage for the duration of their loan agreement.
To see if a payday loan or other loan is affordable to manage a customer must find out what spare or disposable income they have to themselves each month after all financial commitments are taken care off. This income is likely to change each month as people’s income and expenditure from month to month does tend to vary however it should still give a good insight to see if other finance can be taken out and then comfortably repaid. To locate the figure add up all incomes expected for a month and then take from that amount the outgoing expenditure for the same time frame and the amount then left after the calculation is the disposable/spare income. If this amount is high then at least he customers knows they can afford the finance but on the other hand if the amount is low or does not cover any loan repayments then no application should be made at that time.
A payday loan is one of the hardest types of finance to budget for and this is down to the full balance being due on the balance over a very short period of time. A payday loan is a small loan provided by the lender and then is repaid back plus interest on that persons next payday which is normally within a thirty one day period as the maximum duration. These can be hard to budget for as the repayment is due in full and because they typically charge high interest rates making the full balance tough to afford. The interest charged there on the product can vary depending on the lender chosen however it is mainly around £30.00 per £100.00 borrowed. People will soon then start to see that when they repay the full balance it can be hard to afford and other repayments could be missed as a result of this. For example if a customer was to borrow a payday loan for £400.00 ,the interest charged would be around £100.00 making £500.00 due on their payday and this on top of any other possible financial commitments can stretch their finances dramatically.
A borrowing alternative to the payday loan would be the commonly used instalment loan. This is when an amount is lent for similar amounts or possibly more in some cases but then repaid over a time schedule that is mutually agreed between the lender and borrower. The amounts due will most likely be for the same amount so they can be budgeted for and then made affordable until the duration comes to close for the repayment agreement. A customer when selecting their repayment term should always consider that the longer they take the loan out for, the more repayments made towards the overall balance meaning more overall is paid to the lender. With an instalment loan therefore more will be paid in a total amount than that of a payday loan but they are much easily affordable and the customer is in control of the finance.