Things to Keep in Mind Before Applying for A Payday Loan

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When you find yourself in a financial fix, getting cash quickly with minimal effort becomes a priority. There are several ways to accomplish this goal, including asking for a salary advance, selling an asset, or borrowing from family or friends.

However, this is not necessarily a realistic possibility, leaving you in need of an alternative. To bridge this gap and secure the funds you need right away, why not consider obtaining a payday loan?

What are payday loans?

Payday loans are short-term financial products that aim to get borrowers out of an immediate debt pickle. Perhaps you need to travel for a family emergency or have run out of funds to pay your electric bill. Whatever the reason, you can take out a payday loan online to tide you over until receiving your next salary, pension, or benefits payment.

Given current conditions, with coronavirus infections spiking, what makes a payday loan even more attractive is that you do not need to leave home to get one. Online applications are straightforward and do not require as much documentation as conventional loans do.

Terms and conditions

Like any borrowing instrument, a payday loan comes with strings attached. It needs to be repaid, together with interest, over a set period. You can negotiate how many instalments are necessary with the lender. However, loan periods rarely extend beyond three months and only if they exceed an amount the lending company specifies.

Therefore, you will not get three months to pay off a couple of hundred pounds. Lenders expect loans to be repaid in full within two or three weeks, depending on how long it is until your next income amount is paid.

Missed payments result in added interest and mean paying more than you could have if you had stuck to the repayment schedule. Interest rates charged on short-term loans are higher than those of their loan-term counterparts. This means that a missed payment will add a significant amount to your balance.

Applying for a payday loan

Each lender has unique requirements but applicants should expect to provide the company with proof of identity, age, income, and banking details. A payday lender will also want a verified email address and mobile number to contact you. At a minimum, applicants should be 18 years old, although some companies might specify that their products are only available to those 21 and older.

Lenders reserve the right to review your credit score before offering you a loan. However, many do not exclude applicants with a poor credit history. Bear in mind that a failure to repay a payday loan could lower your credit rating, affecting your ability to obtain other loans in the future.

Is a payday loan necessary?

Like any other debt, a payday loan should not be your first option in a crisis. Explore ways to cut back on spending, reach agreements with people you owe money, or raise funds elsewhere. Only after excluding any such option should you consider approaching a payday lender.

Borrowing money can lead you into a cycle of debt, where you are borrowing more to pay off existing debt. This is a hamster wheel that is hard to escape. If you find yourself in this situation, seek professional debt counselling to explore alternatives.

Awareness about lenders

Some companies operate in a seemingly legitimate manner, enough to convince you that they are above board. However, some are no better than loan sharks, looking for easy prey. Research different lenders before settling on one and ensure that they are registered with relevant authorities.

A lender who is reluctant to give specific repayment amounts, insists on taking something like your passport as collateral, or does not provide you with a written contract should raise warning flags in your mind. Some offer interest rates that appear much lower than others, but there is usually a hidden fee attached, or the loan shark uses it to trap you in the debt cycle.

The advantage of online payday loans is that you can easily establish their veracity and check online reviews to get a feel for how they operate. Additionally, it gives you access to hundreds of lenders, not just those who operate from storefronts in your area.

Cooling-off period

There is a 14-day cooling-off period after committing to a payday loan. During this time, you are legally entitled to withdraw from the agreement. If you decide that borrowing the money was a mistake, you can repay it with interest within two weeks.

Ensure that this cooling-off period is included in your contract so you can take advantage of it if necessary. Too few borrowers read the fine print on a loan agreement, and this could disadvantage them. Additionally, they are not always aware of their rights as borrowers. The onus is on the client to know their rights, and they cannot rely on the lender to point these out to them.