You’ve probably heard about cash loans online in the press or online. Also known as ‘payday’ loans, they can be handy when you need cash quickly, but what exactly are they, how do they work, and, more importantly, what could they offer you?
At their most basic, cash loans are short-term, high-interest loans for a small amount of cash that can be applied for, processed and approved quickly so you have the money at your disposal in a very short timeframe – sometimes in as little as 24 hours.
Make no mistake, these cash loans are an expensive way to borrow money, but they can also be very handy. What’s more, since you only borrow the money for a short period of time, then the interest payments can be less than what you would think, given the high APRs attached to this form of borrowing.
Essentially, these unsecured cash loans have been created by lenders to fill a very specific gap in the market, to tide people over with small amounts of cash at the end of the month until payday (although, increasingly, some of these cash loans are been offered for longer terms – up to as much as three months).
How do they work
Typically, an applicant will apply for these cash loans online. This is a very simple procedure taking as little as ten minutes. The big benefit is that the loan is approved (or declined) in a very short period of time so that the money can be transferred to the applicant’s bank account as quickly as possible.
However, because the duration of the loan is typically very short, the lender needs to charge a very high rate of interest in order to make the transaction profitable for the business.
How much will it cost
While the cost of quick cash loans is capped under rules by the FCA (Financial Conduct Authority), the representative APR on an unsecured cash loan can be as much as 1500%. When you compare that to an average credit card APR of around 20-25% and significantly less for a typical high street bank loan, you can see how expensive this form of borrowing can be. So it’s advised to use caution when borrowing money in this way.
Borrowers do have some protection from the FCA. Legislation means borrowing money under the terms of one of these quick cash loans should cost no more than £24 per £100 borrowed over a 30 day period. However, if you don’t make the payments on time, then the lender is allowed to charge default fees of £15 plus interest on the amount borrowed. Furthermore, there is a cap on all fees charged – you can never pay more than twice the amount you originally borrowed.
What is a CPA for cash loans online
Before you are approved online, most cash loans lenders will require you to sign up for a recurring payment, also known as a CPA or Continuous Payment Authority. This gives them the authority to take what you owe on the payment date from your bank account via your bank debit card. The good news is, if you’re uncomfortable with that, you can cancel a CPA at any time. Simply contact your bank or card issuer before the end of the working day before the payments become due.
You could also ask to pay by Direct Debit or Standing Order, but there is no guarantee that the lender will allow this.
Do you really need cash loans online?
Before taking out any cash loans online, make sure you know what you’re getting into and that you will have the available cash for the payments when they become due. The last thing you want is to be left with no cash or coins in your pocket for your immediate financial needs. Hard currency is always best when it comes to dealing with pressing financial emergencies.
If you want to stay out of debt and not have to resort to borrowed finance at the end of each month, it might be a good idea to look at your spending and develop a budget that helps you live within your means. In the article “How to avoid a cash loan” we share a few tips on how to manage your life without going into debt.