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Payday Loans: All you need to know

If you’re in a financial pinch, you might consider payday loans. But before you commit to any financing option, you need to make sure that you know exactly what you’re getting into. Do you know what payday loans are? What about how much you can get? Are you familiar with the application process? And are you sure you can get a loan like this?

These are all valid questions, and ones that you will get an answer to if you keep reading. Find out everything there is to know about this kind of loan and make a sound financial decision!

Table of Contents

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What Are Payday Loans?

A payday loan is an unsecured loan that is taken out for a period of several months. The loan is unsecured because you do not require collateral in order to borrow the money. Unlike quick, small loans that you need to repay within a month or larger ones that span across several decades (like mortgages) this type of loan sits at a medium repayment period and loan amount.

How Do They Work?

Traditionally, payday loans were loans that you received until payday, so for one month often known as Quick loans. The payment was made in full after one month, complete with the additional interest. Now, however, payday lenders offer loans that are given out for longer periods of time. So you have the choice of paying it earlier or later, and of paying it in full all at once, or paying in instalments over the course of several months. Sometimes, you can even get 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, as the name indicates. The 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, a home repair, etc. – and they can be solved quickly and easily with these loans.

Wondering when to go for a payday loan? This would be good if you only need it for a relatively short amount of time and can afford to pay it in full. Of course, you can also opt to pay it over a longer time. It’s good if you have an unforeseen payment, like a medical bill, for example, a travel expense, etc.

  • Same day loans

    Same day loans are ones that you apply for and get on the same day, as the name indicates. The 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, a home repair, etc. – and they can be solved quickly and easily with same day loans.

Who Can Get Payday Loans?

The good news is that these types of loans are open to almost anyone, because they do not have many limitations in terms of accepting borrowers. Here are the minimum requirements to be accepted for a payday loan:

  • Be at least 18 years of age

  • Be a UK resident

  • Have a bank account and a debit card

  • Be employed

  • Have an income of minimum £800

If you meet the criteria, congratulations – you can apply and be accepted for a loan.

How Can You Get Payday Loans?

The process to get a loan is easy. All you have to do is apply, and applying is very easy to do online. You just have to fill in the application form with all the relevant details, and you will find out immediately whether or not you qualify for payday loans online. Once you receive a positive answer, you can move on to the next step.

Now, a database is going to be searched to see whether or not a lender accepts your application or not. 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.

If a lender wants 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 same day you apply, depending on the time of day, and how quickly your application is being processed.

Remember to read the agreement carefully and be fully aware of the terms of the loan, how much you’re borrowing, how much you’re repaying, over what period, etc. 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?

Because these are unsecured loans, the amount of money you can borrow is not massive, but it ranges somewhere between £100 and £5000. Thus, this type of loan can be appropriate for some personal expenses, instead of getting a personal loan, a small amount of debt, down-payment on a car, etc.

The amount you borrow will depend on your financial situation, as well as your needs. It is always advised to only get as much as you need and not fall into the trap of getting the maximum amount possible, because then you will have to repay a larger amount.

How Long Are They?

Payday loans can be 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 affordability and the amount you decide to borrow. The longer your loan is, the less you need to repay monthly, but the more you will repay in total, including the interest rate.

Choosing a short-term loan or a long-term one is entirely up to you and your financial situation. If you can afford higher monthly repayments, then it may make more financial sense to get a shorter loan. If, however, you are concerned about affordability, a longer loan with lower repayment amounts might be best.

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How Do You Repay Payday Loans?

Repayment on them depends on the lender you’ve chosen, the kind of loan you have, and your personal financial situation. For example, if you haven’t borrowed a very large sum and you can afford to repay it in full in one go, it would be advisable to do so, as it cuts down on interest.

However, not everyone can afford to do that, which is why there is also the option of repaying in instalments over a longer period. You have set instalments every month, so they are easy to work into your budget, and you don't have to stretch yourself thin trying to repay in full.

What Are The Advantages?

They can come with a lot of benefits for the borrower, depending on what your needs and interests are. Make sure to review them before choosing.

  • You can get bad credit payday loans

    One of the biggest struggles people face when looking for financing is their unsuitable credit score. Your credit score is the single most important aspect of your application, and if it is not up to the lender's standards, the chances are that your application will be rejected.

    No credit check payday loans allow anyone to borrow the money they need, regardless of their credit score. This can be a very valuable feature, since getting rejected for credit also takes a toll on your credit score.

  • You can repay over several months

    The option to repay over a longer period instead of after just one month can be a life-saver for a lot of 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 they can 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, but you don’t feel it as acutely on the purse strings.

  • You can repay in full or in instalments

    Perhaps one of the biggest benefits of these loans is that they are flexible. They offer flexibility for the borrower in terms of the amount borrowed, the period of repayment, as well as the type of repayment. You have the right to repay the amount in full, if that is something you can afford, but you can also set up a repayment plan over several months, if that increases affordability for you and your family.

What Are The Disadvantages?

Like any other financing option, they can also have drawbacks. These are not necessarily meant to deter you from opting for this kind of financing, but to offer you a clear and complete picture of what you can expect.

  • The interest rate is high

It’s good to know that anytime you get an unsecured loan, the interest rate is going to be quite high, and that is also true of these loans.

The reason for this is that you do not offer an asset to secure your loan, which increases the risk for the lender. It can mean you default on the loan and they are left at a loss. The interest rate is meant to counterbalance that risk and act as a type of security against non-payment.

  • The lending companies are not always trustworthy

    Unfortunately, with unsecured loans, you run the risk of falling prey to a loan shark and getting into more financial trouble than you were in to start with. 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, etc. Make sure the company is registered and read everything before signing.

    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 introduced in 2015

  • You can become reliant on them

    The problem that a lot of 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 not a permanent one.

    As soon as you finish paying one loan, you will find yourself in need of another, and so you enter a vicious circle. This is why they are better suited for one-time solutions to financial emergencies or unforeseen situations, and not a long-term option.

Are There Any Good Alternatives To Payday Loans?

It's important to note that 100% equivalents do not actually 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:

  • a personal loan – if you have good credit and are looking for a larger amount of money

  • a credit card – if you struggle covering everyday expenses but can commit to paying off the balance every month

  • a small loan from friends and family – if you need money urgently and can afford to pay it back relatively fast and easy

In conclusion, payday loans can be a valuable financing option for people in need. And 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.

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