Instant payday loans have received a bad name in the press over the years, which left many people not knowing what to think about them. Is it a good or bad idea to get a payday loan? Do lenders really rip people off with them? These are just a couple of the questions that people wonder about. So here is the truth about payday loans.
Some of the things we are going to look at here include:
- Whether payday loans are a viable borrowing option;
- How they work;
- Circumstances in which they work and in which they will not work;
- The APR on payday loans;
- Finding a suitable payday loan online.
Are Payday Loans a Viable Option for Borrowing
Just as with any type of loan, the payday loan or instant loan as they are sometimes known can work in the way it is intended if it is taken out under the right circumstances. Providing you know the truth about payday loans and what they can and cannot do there is no reason why you should shy away from applying for a cash injection in time of need.
Payday Loans Arrived in the U.S.A in the 80s
Payday loans first arrived in the 80s in the U.S.A; It was not until 2008 that they rose to popularity in the UK.
Payday loans became a viable lending option for people with bad credit who were turned down for other types of loans. Payday loans were initially offered on the high street and then companies began to offer them online as a quick way of offering small loans to people who ran into financial difficulties and who needed a small sum of money to put them on until their next payday, hence the name.
Lack of Regulation Meant Payday Loans Got a Bad Name
However, at this time, payday loans were not regulated and this led to some unethical lenders offering instant loans with huge rates of interest. This often meant that people were paying back more than twice the amount they had borrowed. This led to payday loans earning themselves a bad name.
Things changed for the better in 2014 when the Financial Conduct Authority began to take control of regulations for payday loans.
Among the things that changed included a cap on the amount of interest added onto the loan per day. This meant the cost of borrowing with a payday loan was lower. Default fees were also capped along with a total cap.
How Do Payday Loans Work
Payday loans offer people who find themselves short of money a cash injection in the event that they are met with a financial crisis and payday is some time away. Payday loans can work providing you know you can repay the loan on your payday or over the next couple of paydays. They should be considered as a one-off loan.
You can generally borrow between £100 and £500 with a payday loan. You agree to repay the loan between one and three paydays on the pay dates the lender takes the money from the bank account you signed up with, by direct debit. Providing you can repay the loan off by the agreed dates, a payday loan is a viable option in the short-term.
One of the main benefits of the payday loan is that the entire loan application process can be taken online. It takes just minutes for the application, by giving a few details about yourself including:
- Your age;
- Date for birth;
- Your address;
- The amount of income you have coming in;
- Your monthly outgoings;
- Your bank account number;
- Debit card number.
Circumstances in Which Instant Payday Loans Work and Don’t Work
When considering whether a payday loan is the right type of loan for your circumstances and whether it could work for you, there are some things to take into consideration. These include:
- Making sure you know exactly how much the loan is going to cost you in total, including any interest and fees;
- Make sure you will have enough money left over on payday once the loan repayment has been taken out of the bank;
- Make sure you know the amount of APR as this is often confusing as it is given as the annual percentage rate and you are not paying the loan over the year;
- Make sure you realise the consequences if you cannot repay the loan on time;
- Make sure you understand that a payday loan is not a loan that can be relied on from month to month. It is a one-off loan if you need to get your hands on money fast.
If you are unsure about any of the above and you need to borrow a larger sum of money and spread the cost of the repayments over a longer term, the payday loan is not suitable for your circumstances.
While a payday loan may be taken out to cover any unexpected bill or financial outgoing some of the reasons people take them out and where they work as expected include:
- You got the final demand for a large bill come through your door but payday is still three weeks away and you don’t have enough to cover it right now;
- Your faithful old car has finally given up on you and broken down. It’s not going to cost a lot to fix it but it is more than what you have right now until payday comes around;
- Your fridge freezer has broken down and you need money fast to repair it or replace it;
- The MOT on your car is due and you forget to budget for it, you could do with the money now and you know you can cover the cost on your next payday.
The APR on Payday Loans
The APR or annual percentage rate on payday loans can be very confusing and needs to be clearly understood before heading into such a loan.
It is common to find APRs on payday loans of more than 1000%. This can be startling when you consider the fact that you might get a typical personal loan with an APR of around 39%.
What has to be considered is the fact that you will not be repaying the payday loan over a period of one year. The payday loan is usually repaid on your next payday or spread out over three at the maximum. This means you are only taking the loan over up to three months and so you are only paying interest over that three-month period. Therefore, the interest that is paid is not as high it seems. On saying this, interest on payday loans is usually higher than for other types of loans.
Making an Application for a Payday Loan
The application process for a payday loan is the same as with any other type of loan you undertake online. You need to meet the criteria to be eligible to apply for the payday loan. This is made clear by the lender but is usually that you are over 18, have a regular income, live in the UK and have a bank account with a debit card.
Lenders require your bank account and debit card number, as this is where the money from the loan will be paid and how the lender takes the repayment of the loan.
You can make just one application and from that data, we can search with a panel of lenders who offer payday loans to attempt to match you with a lender. One of the biggest benefits of choosing a loan this way is that from making a single application you are able to gain access to multiple lenders. If one lender turns you down, we simply turn to the next lender.
When we have matched you with lenders, you can then take your time to go over the details of the loan to ensure it is right for you. You can also make sure you know exactly how much the loan is going to cost you, including interest and fees. If you are happy to go ahead, you can finalise the loan with the lender and the money may even be paid directly into your bank on the same day.
Payday loans are often called same day or instant loans due to the fact that they are easy and quick to apply for and if all goes to plan and you are accepted for the loan, the money can be in your bank account within hours.
Instant payday loans are no worse than any other type of loan. Providing the loan is suitable for your needs and you know without a doubt that you can repay it on the agreed dates or date there is no reason why it would not work. As with any loan you are going to be paying interest, however, bear in mind the loan is a quick way out of a financial nightmare that unexpectedly cropped up.