You may have heard different loans being classified into good debt and bad debt. If this is the case then you may assume that payday loans such as direct lenders no brokers are just bad debt. There is an element of the name direct lenders no brokers which could indicate this as part of good debt is comparing prices and going directly to one may indicate that you have not done this. However, it is worth considering the differences between good and bad debt and your own personal circumstances before you jump to conclusions that this is just another bad debt.
Representative Example: £400 borrowed for 90 days. Total amount repayable is £561.92 in 3 monthly instalments of £187.31. Interest charged is £161.92, interest rate 161.9% (variable). Representative 305.9% APR. We are a broker not a lender. We don't charge fees. We don't sell your personal information.
Good debt Is not always defined in the same way, but if you mix together the two main definitions then you can get an idea of what it is. Good debt is often seen to be a debt which will benefit your financial future. Take a mortgage, for example, as it will allow you to buy a home, be free of rent payments and acquire an asset which should increase in value over time. Most people would say a mortgage was therefore a good debt, however, there is still a risk as the house may not increase in value, you may take on a mortgage too high to afford the repayments and it is not a proper asset as you will always need somewhere to live.
This is why it is important to consider the second main definition of good debt. This is a debt which has been well researched and therefore you are confident not only that you are taking on the right type of loan for the purchase that you are making but also that you will be able to afford the repayments. It is therefore key, in this case, that you think hard about your own finances and whether you can afford to make those repayments every time they are due to be paid. It can be hard to predict the future, but worth thinking about the possibilities to see if you think that it is worth taking on.
Bad debt can also therefore have two definitions. It can be thought to be a debt where you purchase something that will not have a positive impact on your future. This could be if you purchase something that is a luxury item with the money, perhaps new clothes or home décor or something like that. Where it becomes difficult is if you are purchasing new clothes for a job interview, as there is a risk you will not get the job but without the clothing you may have an even lower chance of getting the job.
The second definition of bad debt is again to do with your capabilities of repaying it. If you are worried that you will not be able to make the repayment, you are perhaps already struggling each month or the repayments are just very high, then taking on this debt would not be considered to be a good idea.
So as you can see the definitions can be rather sketchy. This means that trying to fit in payday loans, is not really that easy. You have to consider whether the loan is really necessary for your future or whether you are just using it to purchase luxury items that you can manage without. Consider what you are spending the money on and whether it is something you can wait for, perhaps saving up for it or just managing without or whether it is something that you really need and cannot do without. You also need to think about repaying the loan and whether this is something that you are confident that you will be able to do. Consider how much money you tend to have left at the end of each month and whether there would be a way that you could afford the repayments, perhaps by cutting own spending in other areas. Comparing loans to get the one most suitable for you would also make the loan more favourable. So you need to look at your own personal circumstances to analyse whether a loan of this type would be a good or bad debt for you.