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Payday Loans Explained What are Payday Loans?
If you're reading this, then you might be considering a payday loan. But before you commit to anything, you need to make sure that you know exactly what you're getting into. What are payday loans? How much you can get? What about the application process? These are all questions people ask about payday loans, and coincidently, these are questions that will be answered here.
What is a Payday Loan?
A payday loan is an unsecured loan that is given out for a short term, usually for until your next payday, as the name would suggest, although this can be extended by some lenders to last longer. The money can be received either as a cash loan or can deposited into a bank account, and the end of the loan term the customer must repay the loan, and its interest in full.
What is important you know about payday loans is that they are a short term loan and therefore should only be used in short term circumstances. Payday loans are an unsuitable option for repeated lending as if they are used this way then they can tend to be expensive.
Getting payday loans repeatedly is unsustainable, 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.
How does it work?
Traditionally, payday loans were a form of credit that would help you to bridge the gap until your next payday, these loans are often referred to as Quick loans. With Quick loans the payment is made in full after one month, complete with the additional interest.
Now, however, payday loan lenders offer loans that are given out for more extended periods of time. So, you have the choice of whether you wish to pay it earlier or later, and whether you wish to pay it in full all at once or pay in instalments over the course of several months.
A lot of the time you will even receive the money within a few hours, which is also known as a same day loan. Same day loans are ones that you apply for and get on the same day. Speed is the main attraction with this kind of loan, and it makes it an excellent option if you need money very quickly.
Financial emergencies happen all the time - an urgent car repair or a home repair - they all can be solved quickly and easily with these loans.
How long are Payday Loans?
Payday loans can last as little as a few days, or they can be extended over a number of months. The loan period can be anywhere from 3 to 36 months, depending on your affordability and the amount you need to borrow. The longer your loan is, the less you need to repay monthly, but more in full.
Whether you choose a shorter term loan or a longer term loan is entirely up to you, and are mainly dependant on 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 affordability, a more extended loan with lower repayment amounts might be more suitable.
Top Tips for getting a Payday loan How to Get a Payday Loan
If you're looking into payday loans, then the chances are that you'll want to know about how to apply and what you'll need when you apply. The following section comprises a list of everything you'll need to know about the payday loan application process before you even begin to apply.
How do I get a Payday Loan?
The process to get a payday loan is relatively easy. All you have to do is apply, and the application process online is rapid and straightforward. All you have to do is just fill in the application form with all the relevant details, and you will get a decision, this answer is also given to you on the spot, so there is no need to wait around or waste time just to be ultimately rejected like you would with an application at a bank. You will find out immediately as to whether or not you qualify for a payday loan. Once you receive a definite answer, you will be able to move on to the next step.
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 you have your application approved, depending on the time of day, and how quickly your request for a loan gets processed.
Remember to read the loan agreement carefully and remember that its important to be fully aware of the terms of the loan, how much you're borrowing, how much you're repaying, over what period and things like that. Now all you have to do is stick to your end of the bargain and stay on top of repayments.
How much can you get with a Payday Loan?
Because these are unsecured loans, the amount of money you can borrow ranges from somewhere between £100 and £5000, which will be 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, a small amount of debt or even a down-payment on a car.
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 most significant amount you possibly can. This is because then you will have to repay a more considerable amount in addition to interest.
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 digging yourself into a financial hole that you cannot climb out of. If you want to know when the optimal time is to get a payday loan, then we suggest you read on to get the facts. Read More »
When you're in Employment
If you're looking into payday loans, make sure that you are in regular employment, to ensure that you have a reliable source of income so that you can afford to cover the repayment of the credit when '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 in order to help you compensate for the first one.
When you only need a small sum of money
As previously mentioned payday loans do not offer large amounts of money, this is because it is an unsecured form of credit and is primarily given out for short term purposes only. So 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
Please 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 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 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. Let's say 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 short notice so that you can get your money as soon as possible so you can go about your business without worrying about any debts or charges.
However, because of the very high-interest fees associated with these loans, it is best if you reserve this option for financial emergencies only, that should not happen that often. Otherwise, you risk falling into the trap of becoming utterly reliant on them.
If you feel like you're still not entirely informed on payday loans and when you should get one, consider visiting the Money Advice Service so they can provide you with any additional information you may wish to know about payday loans. « Show Less
Are you likely to be accepted? 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, specific criteria that a lender will expect you to fulfil in order to have your application approved. Continue reading this section if you want to know if you could meet a payday loan lenders requirements.
The great thing about payday loans is that they are open to almost anyone because they understand people from all different financial situations and don't impose many strict limitations when it comes to accepting borrowers. To be eligible for a Payday Loan, you will require an active checking 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:
- That you are 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 £750 or more after tax each month.
- Confirmation that your salary 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.
Some lenders will also require that you write a post-dated cheque for the full loan amount and applicable interest.
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 because of your poor credit. It is also worth mentioning that some lenders specialise in bad credit payday loans, so if you have bad credit, it might be worth looking into a bad credit payday loan.
Consider your financial situation at all times and exercise caution and responsibility when dealing with a payday loan. Because of the very high-interest rates and somewhat addictive quality, they may trap you into a vicious financial circle.
Can I use Payday Loans Long Term?
Quick payday loans are not recommended for long term use, for quite a few reasons.
- 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 uses, 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.
You can see how that can quickly devolve into a vicious circle where you can never become financially independent again because you consistently rely on a payday loan. That can have long-lasting and overarching ramifications on your ability to manage your finances, so be careful.
Find yourself the best payday loan rates Things to Avoid to Attract The Best Deal
Payday loans are incredibly beneficial for short term needs, to help you reach your next payday. Whether you're borrowing for five days or 5 weeks, these cash advances have proven to be very popular among specific groups of people who can find themselves struggling to meet the end of the month with money still in their pocket, because sometimes, we all need a little help.
However, instant payday loans are not a blanket solution to every financial problem you may face. You need to know the truth about payday loans, how to get payday loans, how to pay off payday loans. For the time being, let's start with the things you need to avoid when getting a payday loan.
If you want to know the optimal time to apply for a payday loan, carry on reading to find out.
Remember that you will not repay the same amount you borrow, but both the loan you borrowed and its interest. That can affect your budget, so plan carefully and if you have any doubt about whether or not you'd be able to repay, perhaps reconsider getting a payday loan.
Avoid getting Payday Loans if you have other expenses
One of the most significant problems people face with payday loans that they find themselves unable to repay them when the time comes. Ironically, you need to be able to afford to get a loan; it's not just the need that you have to take into consideration, but also whether or not you can repay the amount you receive.
Before you go looking to apply for a payday loan, take a moment to sit down and list all of your upcoming expenses. Can you afford to pay for everything and make the repayment of the loan? Will you have enough money left over for other expenses? Will you be in need of another payday loan soon after repaying the first one?
Avoid using Payday Loans repeatedly
Moreover, speaking of needing to get another payday loan, that might be the number 1 risk with quick payday loans - entering a vicious circle. You see, if you cannot afford your lifestyle, you are going to get a loan and tell yourself it's a one-time thing. However, when repayment time comes, you are going to realise that you've run out of money. So, you go out and take another payday loan.
If this happens repeatedly, you become reliant on payday loans to support your everyday expenses, and that is not a sustainable option. A payday loan is costly and the more you borrow, the more you lose to the lending company in exorbitant interest rates.
If you've noticed that you do not seem to be able to cope with your regular expenses on your current income, then you need a long term solution, which is either cutting back on your costs or bringing in additional revenue. Constant cash advances are not the solution to your financial predicaments.
Avoid getting Payday Loans with extremely high Interest
Payday loans are unsecured loans, which means that you are not required to put up collateral or have a guarantor in order to be given the money. This is because the lender doesn't have security should you default on your loan, the interest on the loan is understandably higher. This is true for all unsecured loans, and instant payday loans are known to have reasonably high interest.
Even so, the rates will differ from one company to the other, so if you're going to get a payday loan for bad credit, make sure you browse multiple offers and try to get the best deal available. The interest rate can make a massive difference in how much you will be expected to pay in the end, as well as whether or not you will be able to afford the repayment.
The amount to repay also depends on the loan term. Traditionally, a payday loan is offered until payday, so for one month. However, now there are options for longer term loans, for up to three months. This enables the borrower to also repay in instalments over the entire loan period, to make repayment more affordable. « Show Less
Ensure your loan is hassle free How to Repay Payday Loans Without Any Problems
People may find that they struggle with repaying their payday loans or that after a while of using them they start to become reliant on them. To avoid getting stuck in the tricky situation of becoming reliant on payday loans, it is essential to know what things to avoid when taking out payday loans. If you want to avoid any mishaps in the future, we suggest that you read on.
Only get a Loan if you can afford it
Firstly, there is more than just one way to be financially responsible and ensuring that you pay off your loans and make your repayments on time is only one of them. Before you even think about applying for instant payday loans, you first need to make sure that you can afford it. Yes, you need to be able to afford a loan; as repayment time comes quicker than you imagined and if you cannot pay, you will find yourself in trouble.
What you need to do is make a list of expenses and compare it to your income.
- Does your income cover them all?
- Do all these expenses need to be made at once or are they staggered?
- Can you afford your regular expenses and loan repayments, on top? Read More »
These are all critical questions to ask yourself, so do not treat this lightly. Crunch the numbers and make sure that you will not find yourself in financial hardship once the time comes to repay your loan.
Budget for your repayments
If you want to be financially responsible and make sure you are able to afford your repayments, it's a good idea to start budgeting for them immediately after you get the loan. Do not let this escape you, because you might reach repayment day and realise that your calculations were incorrect.
To avoid that, implement some simple steps to save money
- 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.
Ask yourself 'How successfully can I pay off a loan'?
Before you consider applying or even looking for a suitable payday loan, you should ask yourself whether you can seriously keep up the repayments and pay them on time. Remember late, and missing payments will accumulate late payment charges, and if you can't pay the loan back successfully, then you may struggle to pay back the costs as well meaning you could fall into some serious debt. So, it is critical to evaluate if and when you'll be able to make repayments.
Don't borrow more than you need
It is easy to bite off more than you can chew when getting a loan but being responsible 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.
It seems like a simple decision to make because it's so quick and easy; also, you're borrowing money anyway, so is a little bit more going to make all the difference? The truth is yes, it will, especially when repayment time comes around. 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!
Take interest into consideration
A mistake that many people can make when deciding to take out credit - whether that be a payday loan or a different kind of loan - is that they fail to take into account the total amount they will need to pay. Remember that the interest rate is high for payday loans for bad credit, so the amount you need to pay off is a bit higher than the one you borrow.
Also, you also need to take into consideration any extra fees you may incur at the bank for transfers, application fees, early repayment fees. As long as you are fully aware of every possible penny you could need to pay, you will not be unprepared.
In conclusion, while a payday loan can be an expensive financial solution, but it can help you in a difficult situation. The problems start when repayment time comes, and you struggle to pay off the loan. However, with a bit of research and 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 in order to be able to support themselves. If you find yourself in need of help with debt, the Debt Advice Foundation is at your service with free advice. « Show Less
Before you apply 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 choosing them as your preferred method of finance. Read More »
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, depending on processing time. 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.
You can get your loan in cash
Unlike other more significant loans, like secured loans, mortgage loans, 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 impeccable 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 anything.
You can get payday loans for 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.
Bad credit payday loans allow you to borrow the money they need, regardless of what your credit score may be. This can be a valuable feature since getting rejected for credit can also impact negatively on your credit score. Although you should be cautious of lenders who offer no credit check loans, as these aren't legal in the UK and won't be FCA regulated.
You can repay in full or in installments
Perhaps one of the most significant benefits of these loans is that they are flexible. They offer flexibility for the borrower regarding the amount borrowed, the period of repayment, as well as the type of repayment. You have the right to repay the amount in full at any point, should that is something that you can afford to do. However, you can also set up a repayment plan over several months if that increases affordability for you and your family.
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
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. Read More »
The interest rate can be high
One of the most significant drawbacks is the fact 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, especially 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 amount they are allowed to charge you for a payday loan is capped by the Financial Conduct Authority.
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. Generally, you can expect payday loans to offer between £100 and £1000, with some of them offering more if the repayment term is longer. That's not enough for a considerable expense, but it is enough for paying bills, bridging the gap until payday or enough to cover a small amount of debt.
The loan term is short
As previously mentioned, the loan term is not very long - typically one month, with possibilities for up to three-month repayment terms. That means you need to be entirely sure that your financial circumstances are unlikely to change during the loan repayment period and that income will be available to repay the loan in one month's time or that you will have another money source at hand, in case you are not able to repay the loan.
Some lending companies are not always trustworthy
Unfortunately, with unsecured loans, there are a lot of illegitimate companies out there who take advantage of too trusting or inexperienced borrowers. You may end up paying hidden costs, being tied into contracts because of undisclosed clauses. Therefore, it is essential to make sure the company is registered, FCA registered, check TrustPilot for reviews and ensure that you've read everything in the loan agreement before signing anything.
That being said, there is some good news - Citizens Advice report that the numbers of incidents regarding payday loans have been reduced dramatically since the price cap was introduced in 2015.
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
Are there any good alternatives?
It's important to note that 100% equivalents do not exist on the market, as payday loans fill in a gap left by financing options offered by banks and personal loan providers. The flexibility is often what attracts people to them, and that is difficult to replicate.
However, depending on your needs, you may be able to cover your needs with Read More »
- A Personal loan - Which is suitable if you have a good credit report and are looking for a more significant amount of money than what payday loans can offer.
- A Credit card - if you struggle covering everyday expenses but can commit to paying off the balance every month, although it is easy to end up maxing out credit cards on bills and expenses.
- A Small loan from friends and family - if you need money urgently and can afford to pay it back relatively quickly if you know someone who has and is willing to lend you the money.
In conclusion, payday loans can be a valuable financing option for people in need. Moreover, while it offers advantages, as well as disadvantages, it is always best to review the information carefully and decide whether or not this type of financing is the right choice for you.
Additional fees and interest
Payday loans in the UK charge an interest rate of 0.8% per day. So, if, for example, you borrow £100 for 30 days, you'll pay £24 in interest. Lending on shorter time frames will bring down interest rates. Interest on £100 for five days comes to as little as £5.60. Keep in mind that these figures are representative of a borrower that pays back their loan on time, if you do miss repayments, then interest rates often increase, and some lenders will even charge a late or missing payment fee. « Show Less
Deciding to take on a loan is a decision that shouldn't be taken lightly. If you have no choice but to borrow, only take what you need and make sure that you have a solid plan for repaying the lender promptly. If you find yourself in need of help with debt, the Debt Advice Foundation is at your service with free advice.
Next steps to take
All in all, 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 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 up to £5,000 today!