Payday loans get some pretty bad press in the UK. Despite this, it’s a booming industry. So clearly, these short term loans serve a purpose.
Now, we’re not financial advisers and, if you’re struggling for cash, then we’d always recommend you get some professional advice. But if you’re considering a payday loan, we’ve done some digging and we answer the most common questions about these loans below:
There are a number of different definitions of a “payday loan.” But typically, this is a loan of a relatively low value borrowed over a short period of time (often just until your next payday).
These loans often have much higher interest rates than those on longer term unsecured loans from banks.
This varies from lender to lender, but generally it is up to £1,000. Some lenders will gradually increase the maximum you can borrow for customers who have taken previous ones out and successfully paid them back on time.
Again, this will differ from lender to lender. But many payday lenders allow you to borrow money for as short a time as a few days and some allow you to borrow for several months.
Make no mistake – the interest rates are significantly higher on payday loans and other short term loans than on bank loans, for example. In some cases, the interest rates are well over 1000%.
BUT… the big caveat here!
Interest rates are arguably not as appropriate way to determine how expensive a loan is when the borrowing period is so short.
With QuickQuid, for example, if you borrow £100 for a month, you’ll repay £124. So ultimately, it costs you £24 to take out that payday loan.
It’s likely to be more useful, in the case of such short term loans, to use the various calculators and be clear on exactly how much you will be repaying.
This is an expensive way to borrow money. However, if you plan to use them as they are intended (to fund a short term shortfall in finances) then it might be cheaper than bank charges, for example.
With Wonga, at the time of writing and based on their website calculator, borrowing £50 for 7 days would mean repaying £52.80. That means you only pay £2.80 for the loan itself. That would, in most cases, be significantly cheaper than going overdrawn and paying bank fees.
Different payday lenders have different charges for late repayments. For example, if Wonga cannot get a payment from your bank the day it is due, there’s an immediate £20 charge. You then have to consider additional interest and fees that add up.
Different lenders will have different policies here. But short term loans typically have fewer requirements in terms of the borrower profile than bank loans. Check the terms.
However, this is an expensive way to borrow money and taking multiple such loans out could very easily result in significant fees and therefore more money worries.
If you’re in a position where you find you want or need to take out multiple payday loans, our best piece of advice would be to visit the Money Advice Service and speak to a professional.
Many payday lenders will check your credit history before offering a payday loan – though many will accept people with poor credit histories.
There are some out there who offer no credit check payday loans. However, such lenders, it could be argued, are failing to properly assess whether or not a borrower would be fully capable of repaying the debt.
When applying for a payday loan, you are very likely to be asked for information about your employer. These lenders needs to know you can afford to repay your loan, so they will want information about where you work, your salary and how long you have been employed.
Many will reserve the right to contact your employer to verify the details that you have supplied in your application.
If you want to know for sure, then contact the lender before submitting your application to ask for sure whether they will be contacting your employer.
Many payday lenders now pay out on the same day that you apply. But check directly with the lender if it is absolutely critical that you get the money on the day.
Is there anything else you need to know about payday loans? Drop us a message and we’ll endeavour to find out the answer for you.