Are payday loans for you?
Payday loans could be the right product for you if:
- You need a small amount of cash (less than £1000) quickly for something urgent
- You have a regular income and are able to afford the full repayment from one wage
- You’ve read the small print and you know exactly how much you will have to repay and are certain you can afford to do so
Payday loans are not for you if:
- You need more than £1000
- You do not have a regular income
- You are only considering payday loans because you have a poor repayment history
- You want a loan that you repay in instalments – payday loans are generally repaid in full in one go!
While there’s little denying the convenience of quick, credit check free loan, payday loans do have their disadvantages and are certainly not for everyone!
- £1000.00 maximum loan – payday loans are generally only available for amounts up to a maximum of £1000, so for people who need more than this, payday loans will not be suitable.
- High costs – with APRs typically between 3000% and 4300% (depending on the lender) this is an incredibly expensive way of borrowing money.
- Failure to meet the repayment on your following payday can result in quickly spiralling debts.
- Although the ‘no credit check’ approach to payday loans can be seen as a benefit for some, the fact is that it means payday loans can often be available to people who actually are not credit worthy and therefore people who could be more likely to end up struggling to repay quickly escalating debts.
Despite their somewhat poor media reputation for luring people into debt and their seemingly extortionate APRs, payday loans do have some benefits for some people. These include:
- No credit checking required – for people with poor credit histories (or even no credit history) a credit check can be a barrier to a loan, even if their income means they can afford repayments. A payday loan doesn’t have that problem.
- Quick! For urgent and unexpected expenses, loans that can be in your bank account on the same day have some real appeal. For example, you need a few hundreds pounds to repair your car – a car your rely on to get you to work! The fact these loans can be applied for and turned around in the same day means they are well suited for relatively low cost and unexpected expenses.
- Repaid in full in a month. Most often, payday loans are repaid in full on your next payday. Providing you really can afford the repayment and you meet it on time, having the loan completely repaid on your next payday means you don’t incur an on going monthly expense.
What are payday loans?
‘Payday loans’ is a term often used to describe short term, low value loan products. They’re referred to as such because the agreement is most often that you repay the loan in full on the payday following you taking it out.
They have notoriously high APRs (over 4000% in many cases) but this figure is often deemed somewhat irrelevant because of the nature of the loans. So, for example, if you borrow £400 and pay it back 30 days later, you pay back £525.
These short term loans are often much quicker and easier to obtain than unsecured or secured loans from your bank, for example. Some lenders will even have the cash in your account within an hour!
Payday loans often do not require a credit check and instead only require proof that the applicant has a full time job, bank account and can afford the repayment.