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Payday Loans Explained
Since I can remember I have always had one eye on payday and the other on the bills. The peaks and troughs of income and outgoings never seems to stabilise in today’s unpredictable times. Even the best of us can get caught out be unpredictable expenses such as blocked drains, faulty boilers, car trouble and the list goes on. In these circumstances you might need a little extra help to get you through to payday when the reserves are depleted.
This is the kind of scenario that payday loans fit neatly into. Also known as a ‘short term loan’ or ‘cash advance’ the payday loan does exactly what it says on the tin, it gives you fast access to cash when you need it most and you repay the total amount including interest and charges on your next payday.
The amount you can borrow is usually between £75 and £1000 and is borrowed up to a maximum of 31 days. Some providers will allow you to roll over your loan for up to 4 months if your circumstances dictate. However, rolling over a payday loan can turn out to be expensive, so use this facility as a last resort.
How much do they charge?
Payday loans are by enlarge very straightforward, there are usually no administration fees and no hidden costs. Keep your eyes peeled as there is always the odd rogue company out there but most companies are clear about their charges being so many pounds for every £100 borrowed with no other charges involved.
Most providers will charge somewhere between £25 and £30 for every £100 borrowed. If you roll over your loan for an extra month there will be additional charges involved.
Who would use a payday loan?
To be eligible you need to have a regular income and a bank account that accepts direct debits. Most companies also insist on you having a valid debit card attached to your bank account. Here are a few of the circumstances where a payday loan may be the right choice:
You want to avoid bank charges/defaults – Most high street banks and building societies charge high penalties for bounced direct debits or bounced
cheques. A payday loan can save you money in these circumstances and help you avoid defaults being reflected on your credit file.
If you are a tenant – Almost all payday loan companies will accept your application if you’re a tenant or a homeowner.
If you have a bad credit history – Payday loan companies do not usually use credit scoring to assess individual applications. If you have a regular income and can pay the debt on your next payday you will be eligible.
Out of the blue expenses – None of us are clairvoyants, when the unexpected happens and payday is too far away a payday loan might be just the solution you need.
You just need cash now – a holiday bargain or a deal that is just to good to miss are good reasons to consider a payday loan. The best companies can funds in your account the same day if you apply early enough.
The pros and cons of payday loans
Pros – solves short term financial needs
Payday loans are elegant solutions to short term financial needs. You can get yourself sorted without calling on friends or family without taking on a long term debt. Payday loans DO NOT affect your credit rating and you will not be asked any awkward questions about your personal circumstances.
Cons – should be avoided for long term lending
Payday loans will have comparatively high rates of interest when compared with regular loans over periods such as 12months or more. Whilst a payday loan will likely save you money over the short term, if you roll them over more than say 3 months they will not be cost effective.
How do I get a payday loan?
You will definitely need a bank account and a regular wage but some companies will request some or all of the following:
• Copies of your debit card front and back
• Copes of your passport or drivers license
• Proof of your current address (utility bill or bank statement)
• Your pay slip (up to 3 months worth)
• Bank statements (up to 3 months worth)
If you apply for a payday loan you can usually attach any requested documents in an email or fax them over to the company.
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