Payday Loans Explained
Payday Loans Explained How Do Payday Loans Work?
If you've landed on this page, then you’re probably considering taking out a payday loan. However, before you commit to anything, it’s important for you to know exactly what you're getting yourself into. In this guide, you will be able to find the answer to such frequently asked questions as, what are payday loans? How much you borrow? And even, how does the application process work?
What are Payday Loans?
A payday loan is an unsecured form of credit that is given out for a short-term period. As the name suggests, this is usually until your next payday, although some payday loan lenders can extend this term. Once your application has been approved by a lender, you will receive your loan either as a cash loan or it will be deposited straight into your bank account. At the end of the loan term, you as the customer must repay the loan and its interest in full.
Payday loans are purely for short-term use only and therefore should only be used in one-off circumstances as they are an unsuitable option for repeated lending, and if used this way then they can be expensive.
How do they work?
Traditionally, payday loans were a form of credit that would help you to bridge the gap until your next payday; these loans are also commonly referred to as ‘quick loans’. Now, however, payday loan lenders are able to offer loans that are given out for more extended loan terms. So, you have the choice of whether you wish to pay back your loan earlier or later, and whether you wish to pay it in full or in instalments over the course of several months. A lot of the time you will even receive your payday loan within just a few hours, which is also known as a same day loan.
Unfortunately, financial emergencies happen all the time – whether it’s an urgent car repair or home repair – but luckily enough they all can be solved quickly and easily with instant payday loans.
How long can I take out a loan for?
Payday loans can last as little as a few days, or they can be extended over a number of months. Here at Multi Month Loans, the payday loan period we offer our customers can be anywhere between 1 to 24 months, depending on your affordability and the amount you need to borrow.
Whether you decide to take out a 1-month loan or a 10-month loan is entirely up to you, and what your financial needs are. If you can afford the higher monthly repayments, then it could make more financial sense to get a shorter loan. However, if you are concerned about the affordability aspect, then a more extended loan with lower repayment amounts might be more suitable for you.
Getting payday loans online repeatedly is unsustainable, as it works out extremely expensive, and payday loan cycles are extremely difficult to get yourself out of. Always ensure you take out a payday loan for a one-off short-term problem.
Are They Safe?
As you may already be aware, since 2014, the safety and security of payday loans have significantly improved due to the Financial Conduct Authority’s regulations. In 2014, when the Office of Fair Trading, handed regulation of Consumer Credit over to the FCA, they wasted absolutely no time at all enforcing rules and regulations onto payday loan lenders to ensure they followed ethical practices, providing protection against extortionate rates and unaffordable loans for all customers. Read More »
Before these regulations were in place, many payday loan customers were finding themselves in huge amounts of debt, where they would repeatedly take out payday loan after payday loan to cover the costs of their previous payday loan. Nowadays, all payday loans regulated by the FCA are some of the most regulated forms of credit available on the market due to some of the rules that have been put into place for customers safety.
Today all payday loan lenders must ensure that they:
- Cap total loan costs to no more than 100%.
- Cap defaulting fees to £15.
- Cap interest rates at 0.8% per day.
- Lenders must issue a risk warning on their websites about taking out payday loans.
- They must also clearly state that payday loans are a form of short-term credit and should not be used for anything else except for their intended purpose.
- They must carry out adequate affordability checks on all of their customers to ensure that they can easily afford to pay back the loans that they take out.
- Must not offer more than two rollovers per loan.
A lot of unsavoury payday loan lenders left the market after the FCA’s rules came into place as they couldn’t adhere to regulations and therefore couldn’t compete with lenders who were using proper lending practices. The rules that the FCA have enforced have ensured that payday loans are now affordable and lenders use legitimate practices with their customers, which were coincidently the main problems which made payday loans so problematic in the first place. « Show Less
Top Tips for Getting a Payday Loan How Do I Get a Payday Loan?
If you're looking into payday loans, then the chances are that one of the first things you'll want to know will be how and what you'll need when you apply. The following section comprises a bountiful list of everything which is crucial for you to know about the payday loan application process, so you’ll know what to expect before you even begin to apply.
How do I get One?
The process to get a payday loan is relatively easy. All you have to do is start your application online, and you’ll find that the rest of the application process is pretty rapid and straightforward.
Simply start by filling in the application form with all the relevant details, submit your form, and you will be able to receive a decision on whether you’ve been approved for a payday loan or not. With Multi Month Loans your approval decision will be given to you on the spot, so there is no need to wait around or waste time just to be rejected like you would with other applications. Once you receive your definitive answer, you will be able to move on to the next step. Read More »
If a lender is willing to do business with you, then congratulations! You've got yourself a loan. The money can even be sent to your bank account on the very same day that you have your application approved, depending on the time of day, and how quickly your request for a loan gets processed.
Before you agree to anything, remember to read the loan agreement thoroughly and don’t neglect the fact that it’s vital to ensure that you’re fully aware of the terms of the loan, how much you're borrowing, how much you're repaying, and over what repayment period. After that, all you have to do is stick to your end of the agreement and stay on top of those repayments. « Show Less
How much can you borrow?
Because these are unsecured loans, the amount of money you can borrow ranges from anywhere between £300 and £5,000, which will be more than enough to cover the costs of any short-term or one-off problems you may be having. Thus, this type of loan will be appropriate for things such as personal expenses, home repairs or even a few debts.
The amount you borrow will depend on your current financial situation, as well as what your needs are.
It is always advised only to borrow the amount that you need and steer clear of falling into the trap of borrowing the largest amount you possibly can. This is because you could struggle to pay back the loan and any additional interest you accumulate, instead, it’s always important to ensure that you can afford to repay your payday loan and the interest back comfortably.
When to get a Payday Loan
As you may have been able to surmise, a payday loan is not meant for just any kind of use; it is not suited for long-term borrowing, or for significant expenses and it is limited to particular circumstances. Not only by design but if you want to borrow money responsibly and make sure that you do not risk getting yourself in any financial trouble. So, if you would like to know when the optimal time is to get a payday loan, continue reading this section to ensure you get the facts.
When you've got regular income
If you're looking into payday loans, make sure that you’ve got a regular form of income and that your circumstances aren’t likely to change anytime soon, this is to ensure that you can afford to cover the repayment of the credit when the payday comes. There is nothing worse than getting a loan that you cannot afford to repay, as this can leave you looking for another fast, short-term loan solution in order to help you compensate for the first one. Read More »
When you need a relatively small sum of money
As previously mentioned because payday loans are an unsecured form of credit and are primarily given out for short-term purposes only they do not offer large amounts of money. Therefore, you cannot rely on even the best payday loans to pay for any significant expenses you may have. Instead, you can get a loan like this if you're interested in paying off a bill, making an urgent purchase, paying off a small debt, and reasons like that.
When you've got no other major expenses in that period
You must be aware of your other household and personal expenses, as well as your own financial obligations when working out what your budget is when you consider payday loans. Before applying for any form of credit, you should sit down and think about all of the other expenses you'll have to account for during the loan term and whether you can afford to repay the loan with its interest, as well as the other payments and expenses you may have.
When you're in an emergency
One of the most practical and obvious uses for a payday loan is in an emergency. If you've got an unexpected payment, you have to make, like a car repair or a medical bill that you hadn't accounted for. Alternatively, perhaps you need to travel abroad or pay for some legal fees you need to be taken care of urgently. Payday loans can take care of all of that on the short notice you have to work with. That way you can get your money as soon as possible so you can go about your business without worrying about any debts or charges. « Show Less
Payday Loan Eligibility Am I Eligible for a Payday Loan?
After learning what a payday loan is, and how to obtain one, your next question is probably; 'Am I eligible?' There is, undoubtedly, a specific criterion that a lender will expect you to fulfil in order for you to have your application approved. Continue reading this section if you want to know if you could meet a payday loan lender’s requirements for a payday loan.
The great thing about payday loans is that they are open to almost anyone because they understand customers who come from all different financial backgrounds and don't impose many unfair limitations on customers when it comes to accepting borrowers. To be eligible for a payday loan, you will require an active current account, proof of current employment, proof of income and valid identification.
Generally, the minimum requirements a lender expects for you to be approved for a payday loan are: Read More »
- That you are aged 18 years or above.
- That you are a resident of the United Kingdom.
- You have a bank account with a valid debit card.
- You receive at least £750 or more after tax each month.
- Confirmation that your income is paid directly into your bank account.
If you have managed to meet the minimum criteria to be considered, then congratulations! You have a good chance of being accepted for a payday loan. If you meet all the requirements the lender expects, then loan approval can take as little as 15 minutes. « Show Less
Can I still get a Payday Loan if I have Bad Credit?
In short, yes you can still get a payday loan if you have bad credit. Although it may be likely that you will have to pay additional interest as a premium because of your poor credit. At Multi Month Loans, we accept all applications from all of our customers and are one of the very few companies that consider all applicants fairly irrespective of credit history.
Do payday loans affect your credit?
Just like other forms of credit, your payday loan won’t affect your credit as long as you ensure that you keep up with your repayments, ensuring that you pay in full and on time. In fact, if you are able to make your repayments regularly, and successfully pay off your loan and all its interest then it will, in fact, have a positive impact on your credit.
However, if you fail or neglect to keep up with your repayments, then this most definitely will put a mark on your credit report, and your credit will, in turn, be affected negatively, it’s as simple as that.
Can I use One Long Term?
No, payday loans are not recommended for long-term use, and because we want you to have a better understanding here are the following two reasons why:
The first reason is that they are costly if you use them for long periods of time because of the interest rates. As payday loans are only designed for short-term, and convivence use only and the interest rates reflect that. Meaning if you do it repeatedly, you may realise that you might as well be saving the money you are spending on interest in the long term for your next emergency. So, if in the future a lender offers for you to keep extending or 'rolling over' your payday loan, you might want to think twice about accepting this offer.
The second is, that when you get payday loans repeatedly, you run the risk of relying on them financially. You can end up entering a payday loan cycle, which can be costly and extremely difficult to get yourself out of, so it's important to try to avoid using them in the long term.
Find Yourself The Best Rates How to Attract The Best Deal
Looking to get the best deal on a payday loan but aren’t sure how? Then read the following section for all our top tips and tricks on what you should be doing and what you should avoid doing if you want to find yourself the best payday loan rates available.
How to Get The Best Deal
Only borrow if you know how you’ll pay it back
If you’re in need of a loan now but aren’t aware of how you’ll be able to pay it back in the future, then it's better to avoid from applying for a payday loan until your financial circumstances begin to pick up. This is because, in order to take out a payday loan, it is absolutely vital for you to have a plan or budget for how you’ll make your loan repayments; as without a budget or a plan you could struggle to make your repayments and get further into debt, and this is something you should avoid at all costs.
Always shop around
It helps to do your research and shop around before you settle for a payday loan. That way not only have you satisfied your need to know that there aren’t better deals elsewhere, but you also have gained the satisfaction of knowing that you have the best deal available. You can compare payday loans online, by using price comparison websites or by simply comparing the loan company’s advertised rates of APR.
Check your credit beforehand
Always check your credit beforehand, as you’ll only be disappointed afterwards if you’re rejected for a great deal because of poor credit. Instead, if you check your credit before you apply for your payday loan, you’ll be able to see if you’re likely to get the best deals or not. Read More »
In fact, the rate of APR that you will be offered will largely depend upon your credit, if you have an excellent credit rating then you can expect to be part of the one of the half who receive the advertised rate, however if you’ve got adverse credit, then you’ll probably be offered another rate of APR. If your credit is on the slightly lower side, then you’ve got two options, you can either try to improve your credit, or you could find yourself a bad credit payday loan, although these do tend to have higher rates of interest.
Use eligibility checkers
Instead of running the risk of being rejected for credit, you should attempt to take advantage of loan eligibility checkers to see whether you're likely to be approved or not for the amount you wish to borrow. Eligibility checkers are good because they are a soft search enquiry which means that it won’t make a mark on your credit score. Also, eligibility checkers are widely available, free for use across the internet and do appear on many loan comparison site websites, so why not take advantage of them?
Remember you may not get the advertised APR
In order for companies to advertise their APR, only 51% of their successful applicants have to be approved at that rate, unfortunately, the other 49% of their customers, they don’t have their loans approved at that rate. Instead, the likelihood is, is that they’ll receive a much higher APR. Therefore, it’s always important to bear this in mind, as although just over half of their successful applicants have their loans approved at that rate, you could be part of that 49% that gets offered a completely different rate.
Remember that your income will dictate how much you can borrow
Unfortunately, it doesn’t matter how great your credit rating is, the truth is, is that your income will be the main criteria that will influence lenders in how much money they will allow you to borrow. This is because lenders have to ensure that they carry out responsible lending practices when lending you money and this ensures that no applicant is allowed to borrow an amount of money that they could potentially struggle or fail to pay back. « Show Less
Have a Hassle Free Payday Loan How to Repay Without Any Problems
People may find that they struggle with repaying their payday loans because they either didn’t have an adequate plan or that after a while of using them they start to become reliant on them. In order to avoid getting stuck in the situation of becoming reliant on payday loans, it is essential to know what you should avoid when taking out payday loans. So if you’re looking to avoid any mishaps in the future, we suggest that you read on.
Budget for your repayments
If you want to be financially responsible and it’s vital to make sure you are able to afford your repayments before you even apply, it's also a good idea to start budgeting immediately after you get the loan. The latter is especially important as you don’t want to reach repayment day and realise that your calculations were incorrect. Read More »
To avoid that, implement the following simple steps:
- Put money aside for the repayment every day, or week.
- Every time you want to buy something unnecessary, put that amount aside towards your repayment, instead.
- Budget the absolute minimum possible for everyday expenses and put the rest aside to make sure you have enough money for your loan repayment.
- Hold off on any expenses that are not urgent in favour of the loan repayment.
The good thing about payday loans is that the repayment periods aren’t that long, so you won’t have to sacrifice much for long, just until your loan is fully paid and your loan term is up. « Show Less
Don't borrow more than you need
It is tempting when getting a loan to borrow a bit more than you need, however being realistic here is essential. However tempting it may be to borrow a little more money, it is vital that you do not get more money than you need. The reason is simple, the more you acquire, the more you will have to repay and if you can't afford the repayments then the more difficult it will be. Moreover, do not fall into the trap of thinking you'll use what you need and save the rest to use for repayment, because you will probably end up spending all of the loan.
Your Next Steps to Take Things to Consider Before You Apply
If a payday loan is looking somewhat appealing to you and you're interested in applying, there's another step you should take before you start applying straight away. There's a good deal of consideration to be done before you should apply, and the following section contains everything you should consider before moving onto the next step of filling out an application form.
What are the Advantages?
Payday Loans can come with many benefits for the borrower; it all depends on what your needs and interests are. Make sure to review both the advantages and disadvantages of payday loans before deciding to go ahead with them as your preferred method of finance.
You get the money quickly
One of the main advantages of a payday loan and the reason why they are so popular is that they are relatively quick loans. It does not take long to process an application for a payday loan, which means that the applicant can receive their credit on the same day. When you find yourself in urgent need of finance and with no other fast options for a loan, a payday loan can be a lifesaver. Read More »
You can get your loan in cash
Unlike other loans for more substantial amounts of money, instead of waiting to get the money in your bank account and then having to withdraw it, you can get your loan in cash, on the spot. That means there are no added waiting times and you can do whatever you want with the money, without the need of taking it through the bank or having your purchases or transfers registered. What you do with the money is your business, entirely.
No need for collateral
Because this is an unsecured loan, it means that you will not be asked for any type of security, including collateral, a guarantor, or even excellent credit history. Other loans, especially those for more considerable sums of money, will require more documentation on your part, as well as security. However, payday loans do not ask for a lot of paperwork.
You can get payday loans with bad credit
One of the biggest struggles people face when looking for financing is applying for loans with their less than perfect credit score. Your credit score is the single most crucial aspect of your application, so therefore if it is not up to the lender's standards, the chances are that your application could be rejected.
You can repay over several months
The option to repay over a more extended period instead of after just one month can be a life-saver for many people who are in need of financing. Very few people can afford to pay back a loan that quickly, and in full; most of them need a payment plan designed around their needs and therefore is easy to stick to. Fortunately, payday loans offer that option, making it easy to budget around the monthly repayment instalment. That way, you are still repaying the money every month, but you don't feel it so much on the purse strings. « Show Less
Bad credit payday loans allow you to borrow the money you need, regardless of what your credit score may be. This can be a valuable feature since getting rejected for credit can also negatively impact your credit. Although you should be cautious of lenders who offer ‘no credit check loans’ or ‘payday loans with no credit check’, as these aren't legal in the UK and won't be FCA regulated.
What are the disadvantages?
Like any other type of financing option available, they can also have their drawbacks. These are not necessarily meant to deter you from opting for this kind of financing, but rather to offer you a clear and complete picture of what is essential to know about payday loans and what you can expect when taking out this form of credit.
The interest rate can be high
One of the drawbacks is that the interest rates can be high. Depending on how long you wish to spread your repayments, this can make this loan option an expensive one, if what you use the money for is not necessarily worth it. Therefore, it is essential to make sure that the reason for your payday loan is worth the high rates of interest. The good news is that the Financial Conduct Authority caps the amount they are allowed to charge you for a payday loan. Read More »
Small sums of money
Because this is a short-term unsecured loan, the amounts you have access to are not going to be unusually high. At Multi Month Loans, we offer payday loans of between £300 and £5,000, although that's not enough for a considerable expense, it is enough for paying bills, bridging the gap until payday or enough to cover a small amount of debt.
You can become reliant on them
The problem that many people have when getting payday loans is that they fall into the trap of becoming reliant on them. If you cannot afford your everyday expenses, getting a payday loan is a short-term solution, but unfortunately not a permanent one. As soon as you finish paying one loan if you can't afford it, then you will find yourself in need of another, and so you enter a vicious circle. This is why personal loans are better suited for one-time solutions to financial emergencies or unforeseen situations and not a long-term option. « Show Less
In conclusion, while a payday loan can be an expensive financial solution, they can help you in difficult situations. However, with a bit of research, planning and complete knowledge of the terms and conditions of the loan, anyone can successfully pay off their payday loan without falling into the trap of taking consequent payday loans every month to support themselves. If you find yourself in need of help with debt, the Debt Advice Foundation or StepChange is at your service with free advice.
Next steps to take
All in all, online payday loans can act as an excellent solution if you're in a situation where you need money on short notice. An emergency that calls for some financial help can be resolved with a payday loan, but it is by no means meant to be a permanent, or long term solution.
If you've read all our information on everything you need to know about payday loans online and think that a payday loan is an answer to any problems you may be having, then the only thing left to do is apply!
Choose Multi Month Loans for your payday loans, for instant decisions on loans from £300, up to £5,000 today!
Last Updated on the 01/10/2018