Those who need a quick influx of money to get them through what they regard as a temporary rough patch may consider taking out a payday loan. Payday loans are similar to personal loans whereby a sum of money is borrowed and repaid with interest, with the possibility of additional loan charges. Where pay day loans differ, however, is that they are specifically intended for smaller amounts of money over a much shorter term (hence them sometimes being classed as short term loans).
What are Payday Loans?
Payday loans get their name from the fact that many borrowers will take out such products from payday loan lenders to tide them over until their next pay cheque clears. Payday loans lenders (including various money lenders, pawnbrokers and doorstep lenders which offer this service) typically allow their customers to borrow an amount near what they would normally earn from their wages; however the best payday loans (in terms of the amount of money that can be borrowed)can offer up to or even over £1,000.
When a person’s wage is eventually paid in, their payday loan lender will expect them to repay any money borrowed. This is a simple process in which the pay day loan lender will debit the payment from their customer’s bank account.
Disadvantages of Payday Loans
It has become, to the worry of many financial experts, increasingly easy to obtain payday loans. No faxing and quick payday loan application processes are advertised on pay day loan lenders’ websites, with many offering instant payday loans aiming to give applicants a decision within minutes. When applying for standard personal loans, there is usually an intermediate step for a specialist to review and approve any application – or at least for automated processes at banks and building societies to make a decision – though this is rarely the case with payday loans. No brokers, or at least few brokers, tend to work on pay day loan requests, as payday loan companies and other online lenders themselves usually offer a guaranteed payday loan, thus cutting out any middle men and getting the money from these online loans to customers a great deal faster.
Surprisingly, it is possible for borrowers to find an instant payday loan even if they have an undesirable financial history. Payday loans for bad credit allow those with a poor credit rating to take out a short term loan until their next payday. Also referred to as no credit check payday loans, pay day loans for bad credit bypass any form of credit check in the application process. A payday loan for bad credit is considered by some as a means of rebuilding their credit score, though borrowers are warned that if they continue missing their repayments, they may end up being riddled with debt for years to come.
As may be imagined, guaranteed payday loans can easily spell trouble for customers of payday loans. Bad credit scores in particular will result in extortionate rates of interest because of the risks they entail, though a pay day loan of any nature can end up costing a customer up to £30 of every £100 borrowed, or even more. For those who cannot repay their debt, they can ‘roll it over’ to their next payday. This may appear as though these loans are flexible products, but interest fees will still carry on accumulating – essentially making an individual’s financial situation even worse.
Nevertheless, if a borrower takes great care to ensure they repay their debt, quick payday loans can arguably be an easy way of borrowing short-term. Specialist comparison sites can be used to find the best payday loan deals and help applicants make an informed choice over how they want to supplement their income.
It is essential that those borrowers struggling with repaying payday loans seek impartial advice on debt management. Though many debt management companies exist, free debt advice is often available from charities and bodies such as the Citizens’ Advice Bureau; these bodies usually offer the best advice as they have no vested interest.