Payday loans can be an incredibly useful resource in many situations. If you have a medical emergency, need a sudden repair on your home, or are confronted by an unexpected bill, a pay day loan can help you to meet that expense and bridge the gap into your next pay cheque.
Payday loans have received a bit of bad press of late, and it is true that there are risks associated with this type of borrowing, and there can be disadvantages to using pay day loans. However, if you are careful and handle things well, you will likely be able to have the benefits of pay day loans without suffering any negative consequences.
In this article, we will look at what you need to know about payday loans in order to navigate this system.
What is a Pay Day Loan?
A pay day loan is a form of short term credit. It is a loan which is usually taken out by people how need a quick cash injection to cover expenses and see them through to their next pay day. These kinds of loans are becoming increasingly popular with consumers in recent years, as a method of bridging finances when they need it the most.
Pay day loans are usually issued by financial institutions which specialise in these kinds of loans. These institutions may operate out of a shop front, but in the last few years, many have moved towards online set ups which mean that customers can make a quick and discreet application easily online.
Advantages of Pay Day Loans
Perhaps the most obvious advantage of a pay day loan is the ease in applying. Other loans require you to go through an onerous application process. However, pay day loan applications can usually be applied for online in a matter of minutes. This process is not only quick and easy, but is also discreet, guaranteeing your privacy.
Additionally, you will be able to receive your cash very quickly: usually this is processed as soon as the loan is approved. Other types of loans may take weeks or months until you are able to receive the funds you have been awarded, which is of little use if you need cash to meet an emergency situation. However, a pay day loan will typically pay out straight away.
Finally, pay day loans are generally unsecured. This means that you do not need to provide any kind of assets to back up the loan. Other types of loans sometimes require you to leverage assets you own, such as a house, in order to secure a loan. However, pay day loans only have a few basic requirements, which we will cover in the next section.
Disadvantages of Pay Day Loans
The major disadvantage of pay day loans is their high interest rates. As unsecured loans designed to be borrowed over very short periods, these loans typically have very high interest rates compared to other kinds of loans. This can be a particular issue if borrowers are not able to pay back the loan quickly and end up having the loan for a period of months: in these cases, they may pay a large amount in interest, perhaps even more than the original loan amount.
Another disadvantage of pay day loans is that their requirements can be stringent and you may not be automatically approved. This can put emergency borrowers under stress if they desperately need a cash injection and their loan is denied. For this reason, it can be necessary to apply for pay day loans with multiple lenders to make sure you secure your loan.
Although the loans are often easily and quickly approved, certain conditions are generally required. In the UK, borrowers need to be at least 18 years old, have a UK bank account, be a UK resident and usually will need to be in full time employment.
Late payments or defaulting on repayments can have serious consequences. This can often be a trap which people fall into: if they are unable to make a repayment, they not only need to continue to pay interest but they may incur steep fines which will be subject to interest as well. If you are under financial stress or feel you are at risk of defaulting on a repayment, it is important to seek advice from a financial advisor or counsellor.
How to Secure a Pay Day Loan
When looking to secure a pay day loan, you essentially have two options. You can either apply direct with a lender, or via a broker. Brokers are not lenders themselves, but rather look at different loan options and help you to apply for them. Sites like Cashlady UK let you apply online for cash day loans via a brokerage service. This means that you will have access to multiple lenders, will have more chance of having your loan approved, and will be able to find the best loan for you when you need it.