Guide to: Payday Loans

Whether you’re looking for some extra money to get through the month or would like to borrow extra cash quickly to replace an important item such as an emergency appliance for your home that has suddenly broken, payday loans are available to enable you financially.

Sometimes you need a loan as quick as possible, especially if other means of income are not attainable. For example, you may not qualify for a business loan or simply not meet the additional criteria for a larger secured loan. In situations like this, a payday loan can solve your short-term financial issues and help you last until your next pay day without agreeing to a long-term financial commitment.

What is a Payday Loan?

A  payday loan is a short-term loan that is designed to help people survive with the cash they have before payday arrives. Typically, it’s paid directly into a bank account of your choice and repayment is due on the date that both you and the lender agree to (usually your next pay date).

Normally, there is additional interest added on top of the original loan. You can work out the costs for this by using an online payday loan calculator that will clearly display your initial loan and monthly repayments including the additional interest.

People tend to take out payday loans for around 30 days, although this is dependent on financial circumstances and their next pay date. The extra cash can be used for anything you decide; whether that is for an emergency phone replacement or unexpected expensive utility bill that you simply cannot afford at the end of the month.

How Much Can I Borrow?

The limit for a first-time payday loan customer may be limited to £500 although the amount you borrow depends on a variety of things, such as:

·         Your existing credit rating

·         Your financial history

·         Affordability assessment

·         The lender current criteria

The amount you can receive through a payday loan takes your financial consideration into account as the lender will want to rest assured knowing that repayments are clear and manageable for you. For this reason, high-cost, short-term credit loans may not be suitable for people already struggling with their daily finances.

Due to the frequent urgency of taking out a payday loan, many providers will aim to transfer the loan into your account within a matter of minutes after your application has been approved.

What Is the Interest Rate on a Payday Loan?

The interest rate on a payday loan can vary from lender to lender. However, the majority of interest rates on this type of loan are calculated in Representative APR, making it easy for you to compare providers.

Representative APR is higher on a payday loan than any other type of loan as it is calculated as being taken out across the entirety of a year – instead of a few days, weeks or months like a payday loan is most often used for. This means that the interest you pay back on a short-term loan using Representative APR interest will be higher than a longer loan. Your APR interest rate can be determined by your credit rating or income.

On the other hand, there are daily interest options that a payday loan can contain. Due to FCA regulations, you will never pay more than 0.8% daily interest. This means that the maximum interest you would pay on a loan of £100 over 30 days would not exceed £24.

Early and Late Repayments

Some loan providers may allow early repayments, meaning that there is no extra charge for repaying the loan if it becomes manageable sooner than you initially expected.

This option will permit you to clear the debt earlier and through payday loan services that charge daily interest, you may end up paying less in total than you would’ve with the additional interest over a longer duration.

However, payday loans can cause financial problems if they are not paid within the time agreed in your contract. If your loan falls into arrears (meaning that you’re behind with your scheduled repayments), the interest on your loan will continue to rise, leaving a negative print on your credit rating that could affect your eligibility for future borrowing.

If you require further assistance with pay day loans, get in touch with our team of financial experts today. We can help to provide advice on the most suitable solution for your own personal needs and recommend the best option for you.