Payday Loans

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How do payday loans work?

Payday loans are designed to be taken out over a short period of time and used for short term needs. In general, it is advertised as a loan that is used to tide you over  the end of the month, when you are strapped for cash and waiting for payday. This means it can be arranged over just a few days and used as a stop gap until you are paid. It also means you receive the money very quickly – in a period of hours or days. 

Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk

 

How much can you borrow?

This depends on the lender, although the average payday loan is from £200 up to £1,500.

 

What are the advantages of payday loans?

  • Simple: Payday loans are very simple to understand, you borrow a small amount of money over a short period of time and repay it over a period of up to six months. 
  • Quick: In theory, you could apply for a payday loan and receive the money in a matter of days, or even hours.
  • Emergency: In an emergency situation, sometimes a payday loan really is the only option. 
  • Regulated: Official payday loan companies are authorised and regulated by the Financial Conduct Authority , meaning you as a consumer are protected at all times. 

 

What to consider if you’re going to get a payday loan

  • High interest rates: Payday loans typically have APRs of 1,000% which makes them incredibly expensive even for small amounts of money.
  • Repayment: If you do take out a payday loan you should be absolutely sure that you will be able to repay it as the interests rates are high which is reflective of the unsecured nature of the loan. 
  • Short term: Payday loans are usually only appropriate if they are borrowed for a specific need and taken for short period of time. Short term, or payday loans shouldn’t be looked upon as a long term option. 
  • Credit Rating: Even if you have repaid your payday loan on time, applying for a payday loan it can still affect your credit score. This can seriously impact your eligibility for other loans (including mortgages.)

What are the alternatives to a payday loan?

  • Asking for a payday advance: Your employee may well be more sympathetic than you think in offering you an advance on your pay. Certainly, it might be worth asking. 
  • Borrowing from friends or family: If you are going down this route it is important that you put the agreement in writing, work out a budget and a repayment plan and also discuss the ramifications of what happens on if you are not able to make a payment. 
  • Using a credit card: These can actually be a cheaper option than a payday loan if you are able to get approved. 
  • Using an authorised overdraft: Whilst expensive, this option is still cheaper than a payday loan, subject to acceptance.
  • Borrowing from a credit union: With this sort of loan, there is a cap on the amount of interest chargeable. 
  • An interest-free loan from the Social Fund: You may be able to apply for an interest-free budgeting loan from the Social Fund. 
  • Help from your local welfare assistance scheme: If you are struggling to pay for essentials like food, water and heating you may be eligible for governmental help. 
  • Sell your unwanted items: Using sites such as eBay may be an easy way to earn money fast. 

 

What can you do if you can’t make the repayments? 

 

If you find yourself unable to make the repayments on a payday loan, you can phone the bank and cancel the recurring payment that allows the lender to take money directly from your account. 

However, you need to make sure to do this at least a day before the repayment is due and inform the lender of your actions. 

You can also seek help from a debt advisor who may be able to offer you advice on handling your finances more proactively. 

What do people use payday loans for?

Most individual use payday loans to cover one off payments including purchases, breakdowns and emergency medical bills. It may be that you are simply not earning enough to cover your monthly expenses in which case you should consider looking at your monthly budget.

Are payday loans legal?

Yes, payday loans are absolutely legal and indeed, are subject to harsher regulation than alternative forms of credit. 

Payday loans for bad credit?

It can prove a little more challenging to gain a payday loan with bad credit. However, it’s certainly not impossible. You just need to be careful when seeking out a loan and make sure to double check what you are signing on for.  

What is the difference between a direct payday lender and a broker?

A direct payday lender is an organisation that will grant you the money directly, whereas a broker simply has relationships with various financial institutions and can connect you with the company that is right for your needs. 

What are the advantages of using a payday broker?

A broker may prove helpful for:

  •  The best deal: They help you find the best possible deal. This is because they have relationships with a number of companies who pay them commission, allowing them to negotiate far better rates. 
  • Tailor made quotes: They are also able to tailor make a quote for your approval and guarantee the safe and secure transfer of your money. 
  • Poor credit rating: A broker may be able to help you if you have a poor credit rating,
  • Speed: A broker may be able to work faster than a direct loan company. 

What are the advantages of a payday loan direct lender? 

A number of people believe that payday loan direct lenders are far safer and simple to deal with. With a direct lender there are usually no hidden fees or commissions to be paid. The funds are transferred directly so the customer will always know who they are dealing with. For these reasons people often feel more comfortable using a direct lending option. 

Payday loans on benefits

Many lenders will still allow you to apply for a payday loan if you are on benefits. However, without a regular income it is important to borrow responsibly and ensure you are able to pay back the loan according to the terms set out from the start. 

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