Affordable, convenient & quick access to cash online
Often regarded as 1-hour loans or short-term loans, payday loans are usually taken out in the middle of the month. You borrow an advance on your salary when a need arises, but you need to pay the loan with interest back after you are paid. Thus, the amount itself is very small and is repaid usually in under 2 weeks.
Finding a payday loan in the UK
Once you decide to get a payday loan, the next daunting task is finding the right lender. With the popularity of payday loans, it is easier to fall prey of online scams or loan sharks.
This is why it's important to make sure that your lender is registered with trade organizations – CFA (Consumer Finance Association) or CCTA (Consumer Credit Trade Association).
A lender who is not registered with either should be avoided completely. Doing research safeguards you from lenders who are not reputable. Taking advantage of a loan comparison website is always recommended.
What is a Payday loan?
Payday loans are unsecured loans that have short repayment terms but carry high-interest rates. This means that clients do not need to put up an asset as collateral for security measures.
This makes payday loans accessible to the majority of people, from all work classes. Financial Conduct Authority has implemented new regulations, following the rising popularity of payday loans.
This movement has protected the borrowers, as the lenders cannot demand more than the double of the amount being loaned. As a result, payday loans have become more affordable.
An additional cap has been introduced to protect the borrowers; the fee cap of £15. This cap is especially applicable for those who have difficulties in repaying the payday loan.
Another regulation that protects the borrowers is the total cost cap of 100%. Because of this cap, clients do not have to repay the amount, bigger than the loan and the interest.
The real benefits of a payday loan
Usually, people decide to opt for payday loans to solve short term problems and cash emergencies. These include; paying overdue bills, covering medical expenses, repairs, school fees or other personal reasons that demand immediate money.
With the guaranteed and quick access to money, payday loans have become popular. However, some important things should be noted. While payday loans eliminate the problem you face at the moment, it does comes with a package deal of high-interest rates. Ensure that you are able to afford to apply for a loan.
Payday loans offer quick fixes to your financial worries
Some clients find payday loans as a quick fix and get in a habit of taking out six or seven payday loans in one year. These clients end up paying hefty interest and costs for the loan and their financial situation continues going downhill.
Financial experts advise strongly against taking out a payday loan to pay off outstanding debts. Once again, the reason being the heavy interest rates. It is likely that you would not be able to pay off the previous debts and end up taking more loans – which could eventually lead to bad credit history as well as bankruptcy.
Therefore, short-term loans should always be last resort. You must only opt for a payday loan when you have exhausted all other options and your need is dire. It is recommended to undertake loans from close friends or family, or simply use a credit card if you have one.
Eligibility criteria for payday loans
In order to apply for a payday loan, you must be a resident of the UK, holding a valid ID document. You must be of legal age and employed. You would need to provide proof of your employment via bank statements and recent payslips.
You also need to have a cheque or savings bank account that has been opened for at least a month. You also need a social security number, or you should have a taxpayer identification number.
Payday loans are also flexible
You can apply for a payday loan if you are a student. Part-time employees are also eligible. However, getting approved is hard for unemployed individuals, unless it can be proved that you would be able to repay the loan in due time.
All in all, like all short-term loans, you should avoid taking out a payday loan, until absolutely necessary. Do your research regarding the lender and be aware of your rights as a borrower when applying for a loan.
