You might’ve seen ads on TV or social media promoting apps like MyPayNow, Beforepay and even Nimble that offer what they call “pay day loans”. While it might seem like a fun advance on the money you’ve got coming, they’re a bad idea.
Firstly, if you’re considering this kind of advance on your pay we suggest you stop and take a look at your finances on the whole. The first step is to create even a simple budget – we’ve got a tool for that here. Find the holes before you go applying for credit of any kind.
Essentially, this type of credit is aimed at people that don’t have any savings and find themselves in need of fast cash. Often applicants are finding it difficult to live from pay check to pay check, but if you’re just doing it to free up a few bucks, please reconsider.
We’ve laid out some pros and cons below followed by a few tips on how you can free up your own money to avoid finding yourself in a position where this kind of credit is attractive.
- Applying for this type of credit has a negative effect on your credit score. Your credit score is the first piece of the puzzle when it comes to accessing finance later, and you want it as clean as possible… This credit dirties it right up!
- If you were to apply for a home loan having used services like these, it is looked upon as if you’re living beyond your means and your loan will quickly be declined.
- MyPayNow for example is more expensive than other types of credit – 5% of each advance vs 1-2% per month for a credit card/personal loan.
- They don’t check your credit score so it’s easier to be approved than it is for other types of credit. This is clearly dangerous to your financial situation, so buyer beware!
- Cash is deposited into your account which makes it easy to access the funds. Be aware though that repayments are direct debited too, which could compound the amount you borrow each time you do it if you’re not careful.
- It is difficult to overextend yourself as it will only give you a portion of your pay in advance and take the repayment directly from your pay.
To be kind of fair, we’ve listed three cons and three pros, but to us each of the cons is worth more than the three of the pros combined. If you couldn’t tell already, we’re not a fan.
What’s constructive about looking into these payday services however, is that it proves there are other, less harmful ways to sort out your finance.
- Use our budget tool or give us a call to get deeper into budgeting with a goal in mind – like buying your first home, new car or investment.
- Once you’ve done your budget, you might find that other debt is what’s wearing your finances down. If you’ve got credit cards a personal loan, car loan or combination of these (including a mortgage) you might be best to consolidate.
Debt consolidation essentially pulls all your debt into the one loan, which if structured right can:
- Save you money each week or month
- Bring your final payment date forward – by years in some cases
- Give you a single repayment, making it easier to manage your budget and understand where your money needs to be and is going
If you’ve got goals in mind and are looking at the best way to achieve them, consolidating your debt could be the pathway to success for you.
Speak with one of our Finance Specialists today and we can talk you through the process and show you just how much money you could save – 1300 469 840.