There are a number of different types of payday loans, but generally the term refers to a short term small financial aid, designed to cover any expenses until your next payday. Typically, a payday loan broker or lender will be able to provide loans between £100 and £400. This however can vary depending on the broker and the ‘trust’ a borrower has built up with the lender.
At a glance, the interest rates of a payday loan do seem rather high. The reason for this is that they are displayed as a compounded annual interest rate. This means that it would be the cost if it was spread out over a full year. Remember, a payday loan is intended as a short term solution and should never be used for long term borrowing. Generally, you’ll be paying back between £5 and £30 for each £100 you borrow as long as you’re making the repayments on time. Missing pay dates can lead to other charges in addition to the longer period you will owe the money for.
Some advantages to a payday loan
- Most brokers and lenders employ an equal opportunity loan policy so you can apply for most if you have a poor credit history
- They can really help to bridge the gap between paydays for salaried employees.
- Repaying the loan on time can have a positive effect on your credit rating
- The whole application process is very simple and easy to understand
- The money is often deposited into your bank within an hour of acceptance
- Eligibility criteria is minimal and so you’ve got a good chance of being accepted regardless of your credit history
- It’s a short term credit commitment. As long as you make the repayments, you’re not tied into anything longer term
Considerations before applying for a payday loan
Before applying for any finance, but especially a payday loan, you need to be 100% certain that you can make the repayments. For more help and advice on debt management, visit The Money Advice Website here.