If you have ever tried to find the best payday loans, you may have discovered that it is not always a straightforward task.
Short-term lenders often provide a wide range of different loan products. Offers, prices, and terms vary from one lender to the next.
There is no goal-worthy answer to the question “which are the best payday loans?”.
Your circumstances and needs will dictate the best route to go down.
The best payday loans: standard payday loans
By its true definition, a payday loan is a small sum of money that you will borrow until your next your next payday.
Usually, these loans get provided for up to 30 days.
Borrowers expect to repay the full value of their loan (including interest payments) using the money from the next payday.
Once repaid, the borrower have no further outstanding debt.
Standard payday loans may be the most suitable option:
- If you need a small amount of money, usually to a limit of £400.
- When you do not want debt hanging over you for more than one month.
- There is confidence that you will have the funds available for repayment on payday.
The best payday loans: instalment loans
Instalment loans are essential extended payday loans, offering a little more flexibility.
You can usually borrow a larger amount, up to £2000, over between 2 and 12 months.
The amount that you can borrow will depend on the lender and your own credit score.
With instalment loans, you will get regular payment deadlines.
You will return a part of your original loan amount along with the monthly share of loan interest.
Repayments are usually split into equal amounts each month.
In some cases, there may be an inflated first or last payment.
Instalment loans may be the best payday loan product to meet your needs if:
- You need to borrow a larger amount of money, but do not need a large traditional loan.
- You want the option to spread out your repayments so that you do not have to repay your entire loan in one payment.
With Wonga, a standard payday loan (£400) would gain a total £96 of interest, if borrowed for 30 days.
The full amount, £496, would then be due within 30 days.
If you opted for an instalment loan of the same value, you would pay £135.55 in interest and make repayments of roughly £180 per month for three months.
Whilst the total amount owing on the instalment loan will be higher, the lower monthly repayments should be easier to manage.
This is because you would not have to repay the entire loan amount in one payment.
Doing so will hopefully put less of a strain on cashflow).
Remember – if you take out a payday loan only to find yourself take another payday loan the following month, you may be entering a debt spiral.
The best payday loans: guarantor loans
Payday loan interest rates are typically higher than other forms of borrowing. This reflects the increased level of risk that loan providers often have to manage.
This mean you may get approved for a payday loan – even if you get refused credit elsewhere.
Lenders carry out stringent affordability assessments before approving any loan. Once they have completed these necessary checks, they can weigh up the potential of a customer defaulting on their loan.
With a guarantor loan, the cost of borrowing may get reduced.
A friend or family member (usually with a good credit rating or their own home) will agree to back your loan.
This means that your loan guarantor will have to make repayments on your behalf if you cannot pay yourself.
Guarantors provide lenders with extra security to get their money back.
As the guarantor will normally have a higher credit rating than the applicant, they offer more security to the lender.
Because the risk for the guarantor loan provider gets reduced, they will charge lower interest rates than a standard payday loan.
A guarantor loan may be the most suitable:
- If you have a friend or family member that is happy to back your borrowing.
- There is confidence that you can make repayments. Relationships can sour when guarantors get chased for debts that other people owe.
- You need to borrow more money than you would get offered with a standard payday loan. Guarantor loans can be alternatives to traditional bank loans. With Amigo, one of the most well-known guarantor loan providers, borrowers can apply for up to £7,500.
The best payday loans: revolving credit
Some lenders are now blending the payday loans with borrowing terms more commonly used by credit card providers.
These lenders offer low-value loans as revolving credit. One of the most well-known lenders taking this approach is SafetyNet Credit.
When you apply for this type of credit, you will receive a credit limit that is determined by your credit score.
You can borrow up to the largest limit or choose to take a smaller borrowing.
With revolving credit, once your loan is repaid you still have access to your agreed credit limit.
This means that you can borrow again up the greatest limit, as often as you like, as long as your account remains open. Interest gets calculated daily (as is the case with payday loans).
You can usually repay your loan at any time as there are no repayment deadlines.
Revolving credit can be a handy alternative to a credit card for people that want ongoing access to credit.
If you will likely to use the money for bills (including Direct Debits) then you might enjoy cash sent straight to your bank account.
Some lenders provide the option of automatic deposits.
Automatic deposits means adding money to your bank account when you get close to your overdraft limit.
This can be extremely useful if you would otherwise face costly unauthorised overdraft fees.
Revolving credit may be the best type of payday loan:
- For people who want the flexibility of a cash loan with the ongoing credit benefits of a credit card.
- If you are wanting credit without fixed repayment terms.
- You feel comfortable with a long-term credit option that will allow for continued spending.
- In cases where you are happy to provide read-only access to your bank. Providers of revolving credit often check regular transactions as part of their affordability checks. Bank account access is also required for the offer of automatic deposits.
How to decide which is the best payday loan
You cannot always find the best payday loans with a simple search of the web.
A search will only show how other people have felt about their borrowing experiences.
Payday loan reviews are an excellent source of information when researching loan providers.
Yet, reviews are not always enough to help you find the loan that is right for you.
Think about the following things when you are searching for your loan:
How much you need to borrow
Payday loans have expanded beyond their original meaning.
With instalment loans and longer term borrowing now covered by the payday loan umbrella, there are many options to choose.
If you want to borrow less than £500, you may benefit most from a standard payday loan where your debt would be repaid within a single month. Or, you might prefer a short-term instalment loan spread up to 3 months.
If you need a larger amount of money, some instalment loans can get paid back over a full year.
With The Money Shop, you can borrow up to £2,000 for a loan period of 12 months.
These loans bridge the gap between payday loans and traditional bank loans.
For even larger amounts of money, a guarantor loan will be more suitable.
How long you would like to repay your loan
When you borrow money, your loan term often rises with the amount of money you borrow.
If you applied for a £500 loan, you might get given the option to pay the loan back over 6 months. Yet, if you increase your borrowing, you may get given more time to repay your loan.
To ensure affordability and minimise the risk of default, payday loan providers will not let you borrow a large sum of money over a short loan term.
For example, when borrowing from The Money Shop you must choose to repay a £1,000 loan over 3 months.
You will usually be able to repay your loan early with no extra charges if you have the spare cash available. It is strongly recommended that you never borrow more than you need.
Remember longer repayment terms result in a higher liability
When you calculate the total amount of interest payable, it is usually best to repay your loan as quickly as possible.
Borrowing £500 over 12 months with The Money Shop would result in total interest of more than £400.
The monthly repayments would be just over £75.
Meanwhile, borrowing £490 over 6 months will result in less than £300 of interest getting added. Monthly repayments in this example are just over £125.
Decide if you need lower monthly repayment amounts or to pay less for your loan.
If you need a loan with a lower rate of interest, a guarantor loan is an alternative worth consideration.
Whether your loan is a one-time need
Repeated borrowing is a sign of financial difficulty, and perhaps a debt spiral.
If you need to make use of payday loans each month, then you may get trapped in a habit of borrowing.
In this case, you should look to find ways to decrease your expenditure or increase your income.
If you decide that you would like access to an ongoing credit balance you might prefer a revolving credit option.
This will help you borrow and repay on your own terms – without strict repayment deadlines,
These types of loan Loans get used in much the same way as a credit card.
How structured you would like repayments to be
Revolving credit can suit some people, but will not be right for others.
If you think you might find yourself spending money too easily, then this option may not be right for you.
Although your credit limit should still remain fairly low, repeated borrowing means ongoing interest.
Structured repayments can help with self-discipline.
How much support you have from other people
If your family and friends cannot or will not help you, a guarantor loan is not a viable option.
If you have support from someone with a good credit rating, lenders that offer guarantor loans may be able to approve your application.
Guarantor loans can cause relationship difficulties. Taking on the responsibility of someone else’s debt is not a decision to take lightly. As the borrower, you must be confident that you can afford to make repayments on time.
When a guarantor loan is an option, it may result in cheaper borrowing. Interest rates are typically lower than with standard payday loans, which could mean that you will pay less back.
It is always best to compare payday loans.
Each Lender will have their own interest rates, charges, fees and conditions.
These should all play a part in your borrowing decision. Yet, there will not be one type of payday loan that is better than all others in all circumstances.
When searching for the best payday loan, your personal circumstances are the most important factor.