A payday loan is a small amount of money lent to the borrower which is designed to be paid back in full on their next pay date.
Frequently asked payday loan questions
Life has a weird way of being unexpected at times, and no one is exempt from this. It can feel quite daunting and overwhelming when you have an unexpected expense arrive that you just weren’t prepared for. However, in the past few years, payday loans have saved many people who find themselves in a tricky situation before their next pay check arrives.
In essence, it does exactly what it says on the tin. A payday loan is a relatively small amount of money lent to the borrower at a high rate of interest. It is then agreed that the borrower will pay back the amount plus interest on their next payday. It is a short term unsecured loan style of borrowing. In some cases, you can actually borrow money for up to 3 months and pay back in instalments.
They tend to be used to tide people over until their next payday. So, they are used to cover annoying unexpected expenses like if your car didn’t pass it’s MOT and needed to be fixed straight away. Or your phone bill is higher than expected this month. Or you have a dental work bill that was unforeseen. However, they should not be used for non-essential cases like not having enough money for a night out or wanting to buy new clothes.
Payday loans can be convenient if you find yourself in a bit of a squeeze. It’s relatively quick to obtain compared to traditional finance options. Anyone can apply for one even if your credit history isn’t the best. Lenders will look at your credit history as they would with a normal long term loan. However, they have to make sure that you are able to pay the loan back. Used properly and responsibly, they can actually help a lot of people with temporary financial issues.
In the past, payday loans have had to deal with quite a lot of bad press, and rightly so. Some lenders were irresponsible with their lending and didn’t have the borrowers best interests at heart. It meant a lot of people were plunged into debt without having the support or information they needed. As a result, the industry, on the whole, has had a huge shake up and now strict measures have been put in place to make sure borrowers are never put into a situation that they can’t control.
All lenders must be regulated by the FCA (Financial Conduct Authority) and caps have been put in place to ensure a borrower never has to pay more than double of what they borrowed. Plus, fixed default fees have been capped at £15. This means the loan is less likely to spiral out of control like it could have done in the past.
Lenders are also under obligation to give all borrowers the information they need if they do, in fact, find themselves in a situation where they are unable to pay the loan back. Taking this into consideration, the only downside to a payday loan is how high the interest rate is. As the borrower obtains the money fairly quickly and it’s a very short term loan, having a high interest rate ensures that the lender can benefit financially out of it.
You also have to be sure that you can pay it back within the short time frame you have. If you keep to a strict budget and only use the loan for necessities and to help you stay on track until your next payday, then this type of loan could be a good option for you. Adopt a healthy approach to how you spend and you’ll find that a payday loan can help you in a time of need.
Always make sure that whoever you borrow from is regulated by the FCA. You can easily check this on the Financial Services Register. You should always make sure that you know you’re capable of paying the loan back in full with interest charges. Many lenders will show you a calculation of the amount you are planning to borrow, for how long and how much interest will be added. If you’re finding it hard to get the information you need from the lender you’ve chosen, then it’s best to do more research and look elsewhere.
It’s best practice to first detail all of your financial commitments. This will help you visualise what your monthly spend is and how much you will need to borrow. By having a clear plan, you’ll be able to responsibly borrow and be confident knowing exactly how much you’ll need to pay back. Next, you’ll need to find a lender that suits your needs. Always research the lender and find out if they are properly regulated. It’s also worth seeing if they support borrowers if ever they find themselves not being able to pay back the loan as they had agreed. Responsible lenders will always work closely with debt charities to ensure both parties are protected.
Essentially, if you’re honest and open about your own finances and budget accordingly then payday loans can help you out when you need it most. If you do find yourself in a situation where you can’t pay the loan back in time, then it’s always strongly advised to be honest with your lender at the earliest possibility. By keeping quiet or ignoring the problem, you will only further yourself into debt.
If you are having financial difficulties or need to speak to someone regarding your financial situation before applying for a loan you can get free and confidential advice from The Money Advice Service, National Debtline or debt charity StepChange.
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Representative 97% APR (fixed)
Representative example: Borrow £1000 for 24 months at 24 equal instalments of £77.48. Total amount to repay £1,859.52. Interest £859.52. Annual interest rate 70% (fixed). APR rates range from 45.3% APR. to 1575% Max APR. Your APR rate will be based on your circumstances.
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