Payday Loans & Cash Advances FAQs

All You Need to Know About Payday Loans & Cash Advances

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It often happens that when you think that you have everything under control, an unexpected turn of events catches you off-guard and leaves you in a financial mess. Thankfully, you can quickly get yourself out of a difficult situation with Payday Loans or Cash Advances, two of the most common short-term credit options available today.

For most people with poor credit history who find it difficult to access traditional forms of lending, Payday loans and cash advances can be a good choice. However, it is important to understand the terms of the loan and possible outcomes before accepting funds. Otherwise, you risk putting yourself in an even worse situation.

What are Payday Loans & Cash Advances?

payday loans: These are basically an advance on your upcoming wages. A Payday loan is usually easy to obtain, and can be a very helpful source of funds if you need money urgently to get out of a tight squeeze. As its name implies, this type of loan is designed for borrowers to pay back on the next scheduled payday, usually within a couple of weeks. If you can comply with the loan agreement and pay back the loan on time, a Payday loan can be a godsend. However, if you are unable to repay, the high-interest rates could cost you dearly. Follow this link to discover the truth about Payday loans.

Cash Advance: Cash advances can open up your finance options considerably, especially for business purposes. This short-term loan allows you to raise finance based on your credit card turnover, which means that repayments are based on your sales. Repayments are calculated as a percentage of the business' card transactions, so you will never have to worry about being late on repayments. Cash advances come in other forms including merchant cash advances. While this innovative credit option is relatively new in the UK, it is steadily becoming popular with small and medium sized business owners.

Which one is right for you?

If the reason you need money is related to your business, it is highly recommended that you go with a cash advance for your funding needs. Even if your credit is less than perfect, you should have no problems finding a loan company that will approve your loan application quickly. Reasons to take out a cash advance may include purchasing new equipment, expanding or repairing office space, expanding your business and investing in marketing space.

When should you go for a Payday Loan? If you need finances for personal matters, payday loans are a good option. Emergency car or house repairs are good examples of situations where a payday loan could be the ideal solution.

Are you eligible for a loan?

Cash advances are tailored toward small to medium sized business owners whose transactions are done using debit or credit cards. The specific requirements vary slightly depending on your loan company, but lenders will usually ask that you provide merchant statements going back 3-12 months, identification and bank account details, and proof that your business has been operational for at least 6 months.

To be eligible for a Payday Loan, you will require an active checking account, proof of active employment, proof of income, valid identification and you must be at least 18 years of age. If you meet all the requirements, loan approval can take as little as 15 minutes. Most lenders will also require that you write a post-dated cheque for the full loan amount and applicable interest.

How much can you borrow?

When taking out a cash advance, the amount of money you can borrow depends on your business' monthly revenue. As long as your business is doing well, you can secure a loan of up to 80% of your monthly revenue, even if you have a poor credit score.

Payday loans on the other hand are much stricter. Loan amounts vary depending on your income amount and your lender's policies. Typically, the higher you earn, the more you can borrow. However, if your fiscal history shows you had problems repaying loans in the past, a limit may be placed on the amount you can borrow.

Paying back your loan

Repayment terms on cash advance may vary with lenders, but generally follow a similar structure. A fixed percentage is automatically deducted from daily or weekly credit/debit card sales. There are no deadlines or penalties, even when sales are low.

As for Payday loans, you will be expected to pay back the full amount including lender's fees on your next scheduled payday. Borrowers are usually required to write a post-dated cheque for the full loan amount and applicable fees, to be cashed by the lender on the day your wages are paid by your employer.

Additional fees and interest

Technically, a cash advance is not loan, which means traditional interest rates will not apply. Instead, borrowers agree to repay the loan plus a fixed lender's fee using a percentage of their sales revenues. The length of time it takes you to repay your loan will not affect interest rates. These repayment terms are ideal for business owners who need quick financing without having to worry about keeping up with repayments.

Payday loans in the UK charge an interest rate of 0.8% per day. If, for example, you borrow £100 for 30 days, you'll pay £24 in interest. Borrowing on shorter time frames will bring down interest rates. Interest on £100 for 5 days comes to £5.60. Keep in mind that these figures are representative of a borrower that pays back their loan on time. If you miss repayments, interest rates often increase and some lenders will even charge a 'missed payment fee'.

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 in a timely manner. If you find yourself in need of help with debt, the Debt Advice Foundation is at your service with free advice.

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