While the loan market is getting flexible day by day, it is crucial that you look for a better rate of interest. It is the keystone of responsible borrowing. Just like, you do proper research to buy a house, you also need to do extensive research to grab the best loan offer.

You turn to short-term loans when you need funds urgently. Online lenders provide various types of instant loans such as payday loans for unemployed, loans for bad credit etc. Some online lenders claim to provide you with payday loans at lower rate of interest. Is it true or an outlandish claim to entrap borrowers?

Payday loans are short-term loans. The duration of these loans usually is not more than two weeks. These loans usually cater to bad credit borrowers and hence, high-interest rates are charged. Within such a short period, paying back the debt seems all but impossible. If you fail to arrange funds, you will end up with paying late payment fees and interest. Chances are you will fall into a permanent debt circle.

Unlike instalment loans, payday loans carry a flat rate of interest. For instance, if you take out £500 with a flat 15% interest rate, you will pay back £545. It seems a quite cheap deal but this is where the situation becomes tricky.

Payday loans can be more expensive than other bad credit loans

Suppose you are obliged to reimburse £545 but you fail to pay off on the due date. You will pay late payment fees along with interest as a penalty - £45. Your lender will extend the term of your loan for the next fourteen days and you will be obliged to pay £545. The total cost of the loan adds up to £550.

More than 50% of borrowers end up with extending the period of the loan because of short duration, high-interest rate, and lump sum repayments.

Some loan companies act like a loan shark to make huge profits by providing these loans at very high-interest rates. When it comes to taking out a loan, you should do research enough to find out the best and reliable lender.

Payday loans may help serve your needs without pushing you into the permanent debt spiral. Reliable online lenders sanction these loans only after assessing your repayment capacity. They will not lend money unless they are certain that you will not be able to manage your debt along with other day-to-day expenses. If your credit history is fair and you need funds urgently, you can get these loans at lower rate of interest. Direct lenders charge high interest only when your credit report shows high default risks.

Other alternatives to payday loans

If you need funds urgently and you have a bad credit history, you should choose other alternatives.

• Compromise with other expenses

Whether you accept it or not, you are not going to have enough money to manage your debt successfully along with other regular expenses. Since whole payment will be debited as immediately as your account receives your salary. If you are not able to pay your rent in full, talk to your property owner and explain your situation. Do not spend money on things that are not urgent. For instance, if your car is out of commission and you do not have money to have it repaired, you can use public transports. Cut down on alcohol, cigarettes, restaurant food, night outs etc.

• Take out student loans

If you need money to finance your education, try to apply for instalment student loans instead of payday loans. These loans come with flexible terms and lower interest rates.

• Dip into your emergency cushion

Your lender will not approve the application of payday loans for unemployed if other income sources do not prove to be sufficient. In this situation, you should dip into your savings. Even a small amount of emergency funds can prevent you from bearing the burden of interest payment.

The bottom line

Low interest on payday loans is not a myth. A lender will never deny you lending money at a lower interest rate as long as you have a good credit history. You can negotiate interest rates with your lender even if your credit history is not impressive. You just need to prove your repayment capacity. If your monthly revenues are impressive, the lender can grant you money at affordable interest rates.