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All you need to know about payday loans

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PayDay loans get a hammering in the media, but do provide quick and easy access to cash for those who need it. Statistics suggest that the number of people visiting the pages of PayDay loans websites has leapt by more than 160% in the last year. The demand for quick cash to tide you over until pay day is definitely there, but is it a wise move? Here’s the low down and all you need to know about payday loans.

What is a PayDay Loan?

It is a convenient way to borrow relatively small amounts of money quickly to cover expenses that must be paid before your next pay cheque is due. Borrowers typically request amounts between £80 and £800. The loan term is usually 31 days.

Is a PayDay Loan Right for Me?

PayDay loans are expensive. Their very nature smacks of a degree of desperation on the part of the borrower. This makes them high risk for the lender, so they hedge their bets and charge you more for the privilege. It is one of the most expensive forms of borrowing on the market, so you should only consider it as a last resort. That said, when used as a stop-gap to get you out of a financial hole, they can be extremely useful.

If you receive an unexpectedly high bill, for example, it may be better to take out a PayDay loan than to default on a payment and potentially get a black mark on your credit record, provided you are certain you will be able to repay the PayDay the next month. If not, it may be the PayDay loan that scuppers your credit rating, and with staggeringly high interest rates the PayDay loan debt can quickly spiral out of control.

What do they Cost?

All you need to know about payday loansThe APR (annual interest) on a PayDay loan is usually huge. To illustrate the difference, consider that most credit cards charge an APR of 15%-20%. A typical PayDay loan APR is in excess of 1000%. If you were to borrow just £100 over 31 days at an APR of 1286%, you would have to repay around £125. A high price for convenience.

Will it Affect my Credit Rating?

Credit ratings are usually only affected when you default on a debt, or if you apply for credit too often. If you want to avoid drawing attention to your borrowing it is important to select a PayDay loan provider that doesn’t ask for your permission to conduct a credit check before making their loan to you. Conversely, if you are confident of your ability to meet the repayment terms promptly, lenders who do conduct a credit check on you will also report favourably on your reliability, and this can boost your rating.

PayDay loans are not meant to be a long-term solution to financial problems. They exist to get you out of a fix, and should never be entered into lightly. Always read any terms and conditions of a PayDay loan if you opt to use one. And do consider all other alternatives before you commit. Failure to repay within the agreed timescale can be a costly mistake that may cause you significant financial headaches in the future. Have your eyes wide open.

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About Cally Worden

About Cally Worden

Seasoned freelance writer Cally Worden lives with her family and dog in a quiet corner of rural France. A love of the outdoors, and a fascination with her children's ability to view life with fresh eyes provide the inspiration for much of her work. Cally writes regularly for various websites and UK print publications on subjects as diverse as parenting, travel, lifestyle, and business, and anything that makes her smile.

Website: Cally Worden

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