What do you need to know about taking out a payday loan?
These days the majority of people can apply for a loan without picking up a phone or signing their name with a pen.
Loan companies will often tell you about their simple online application process. But this doesn’t mean that applying for a loan is something to complete in a rush.
There are many different things to consider and be aware of.
What should you look out for, when choosing a payday loan provider?
Friends and family members might offer their own payday loan advice.
Some will even have personal experience, but is this enough to go on?
Each lender is different.
No two lenders offer the same service, the same products, the same rates or the same levels of flexibility.
There are so many lenders to choose from, which means finding the right provider can seem like an endless challenge.
If you are choosing a payday loan provider, here are a few important things to take into account:
- How much money are you able to borrow? Remember some providers offer larger loans to repeat customers, with smaller loans for new ones.
- What are the available repayment terms? How long do you need to pay back your loan? Some lenders work with the strictest definition of a payday loan. They expect their money back after your next payday. Yet many offer short-term loans that can be paid back in many instalments.
- Be aware longer loan terms will likely result in more interest accrued and more money to pay back. Although the majority of lenders will allow you to repay your loan early without more fees.
Early repayment can reduce the interest that you pay.
- What charges are there? Some lenders now offer loans with no fees for late repayment. Others charge a small default fee if you can’t make your payment on time. Lenders will typically give you a few extra days before they add the charges to your account. But you’ll need to be aware of these potential extra costs.
Is a high APR as scary as it sounds?
APR stands for Annual Percentage Rate.
It is the high APR – often in the thousands – that can deter consumers from their payday loan applications.
Though a high APR can sound scary, don’t let it cloud your judgment. An APR figure is an annual calculation, whilst payday loans are short-term credit options.
Scaling up the cost of short-term credit over a longer period of time will, naturally, make it sound much worse than it is. For that reason, you should focus on the cost of the loan over your chosen repayment period.
The APR figure is a legal rule for all loans. Yet doesn’t convert well to payday loan offerings, as Martin Lewis of MoneySavingExpert explains.
Do you have to go through each loan application individually?
Every loan application that you make could leave a footprint on your credit file.
Footprints on credit files don’t damage your credit score, but each time you send a loan application you’ll be adding a mark to your file. For future applications, this information will be on display.
Lenders aren’t likely to offer you a loan if you’re experiencing rejection after rejection elsewhere. Having too many footprints on your credit file can imply that you’re struggling financially.
Lenders recommend you wait at least three months between loan applications. But it’s also worth remembering that footprints stay on files for a year.
Fortunately, you don’t have to go through the full loan application process to get an estimated total repayment figure. Many payday loan websites feature an online loan calculator, which doesn’t leave a mark on your credit file.
Use an online loan calculator to select how much you want to borrow, and how long you want to borrow for. Then receive an estimated total loan cost and the estimated instalment amounts.
Loan calculators aren’t entirely accurate. Because how much you’re offered and how much you’ll repay will depend on your personal circumstances. Also on the results of affordability assessments. Still, they’re a useful place to start.
If you don’t want to apply to many lenders, and if you’re concerned about footprints on your credit file, you can use a loan broker for a loan application. Brokers don’t lend money directly. But they can put you in touch with lenders that might offer the funds that you’re asking for.
A broker, like Cash Lady, will send details from one application form to a range of trusted lenders. You only need to provide your details once, which can save you time and effort. Loan brokers can then collect together the results of your application, showing only the offers that suit.
If you like the offer that you’re shown, you can continue your application with the payday loan provider. Using a broker can increase your chance of acceptance. It will also avoid time spent making individual applications that might not result in an offer.
Finding payday loan advice to help you find trustworthy lenders.
The payday loan industry is strictly regulated.
In the past, payday loans were not as tightly regulated as they are today. The Financial Conduct Authority (FCA) now acts as the industry regulator. All lenders by law have to be registered and authorised.
Thanks to the FCA, there are caps in place to protect consumers from accumulating debt.
- Interest rates are capped at 0.8% per day.
- Default fees, for late payment, are capped at £15.
- No borrower will ever have to pay back more than double their original loan amount.
As a result, lenders are much stricter with affordability assessments and the checks that they carry out.
Borrowers that could end up in financial difficulty will find it harder to get a payday loan. Consumers won’t be able to easily take out many loans.
Of course, to have the protection of the FCA, you need to use a registered and authorised lender. It is unfortunate, but there are still unregistered lenders that act unlawfully and can put you at risk. You should search the Financial Services Register to see if your chosen lender is authorised to offer their services.
You should also check the Financial Services Register if you’re using a loan broker. Use a broker to make a loan application to many lenders at once, but your broker should also be regulated by the Financial Conduct Authority.
When is applying for a payday loan the right decision to make?
Payday loans are high interest, short-term solutions.
A payday loan is not intended as a long-term financial product. You should also avoid payday loans if you repeatedly rely on credit.
If you are struggling with an unexpected cost or an emergency expense, then a payday loan could be a suitable option.
Before applying for a loan, you should be sure that you can repay your debt on time. Don’t just take into account when you’ll have the available money. Also, consider what will happen if you have another unexpected outgoing before your loan is repaid in full.
D0 you find you’re taking out short-term loans? Or that you need a payday loan for your day to day living costs? Then you should seek more debt advice.
If paying off one loan leaves you short on money the following month, you risk an ongoing spiral of debt.
What should a payday loan be used for?
Payday loans should be for life’s little emergencies.
For example. you might choose to apply for a loan if your car breaks down and you need immediate money for repairs. More so if you can afford to repay your loan using spare cash the following month.
You should avoid using high-interest loans for non-essential purchases. Things such as holidays, nights out or home improvements. Also, avoid taking out a payday loan to cover a regular shortfall in your income. If this shortfall isn’t a one-off, find more permanent ways to reduce your outgoings or to boost your income.
What if you’re having problems repaying your loan?
It is important to act fast.
As soon as you realise that you’re experiencing financial difficulty, you should take steps to address the problem. The longer you wait before acting, the more problems you could be creating.
Payday loan providers need to be fair and responsible. If you reach out, you may be able to negotiate more comfortable repayment terms. Lenders should work with you, helping you to find a reasonable solution.
If you don’t act quickly, you could put yourself into a stressful situation where you’re chased for what you owe. Some borrowers become tempted to borrow more money. Perhaps taking out an extra payday loan with another provider, which can make debt problems worse.
“Robbing Peter to pay Paul” is a phrase commonly used to describe a situation where a consumer is using one debt to repay another. It’s a dangerous habit to get into. You should find by addressing your problems with current lenders, you’ll find a more suitable alternative.
If your debt problems are much more significant, with many loans or credit cards, you may need further advice. Debt charities such as StepChange, ClearStart and PayPlan can offer free debt advice. They can help you to find options that are available to you.
Important things to consider
- You might have heard of some of the leading payday lenders, such as Wonga, Sunny and QuickQuid. There are many smaller loan companies that you might not have heard of. If you discover these when you’re searching and applying, don’t ignore their offerings. As long as they’re regulated by the FCA, they’re subject to the same strict rules that the larger companies have to work with. You might find that they offer a loan that better suits your needs.
- You shouldn’t apply for a payday loan unless you’re sure that it’s what you want. As soon as your application is processed, a mark is left on your credit file. This mark isn’t removed if you later decide not to borrow.
- If you don’t have a lot of time, applying through a broker is typically the safest thing to do. If you feel pressured into a loan, you might not be as thorough in a search that you do on your own. You could be missing out on the best deal or even worse, become a victim of fraud.
Applying for a payday loan isn’t always as easy as it might sound. It helps to be knowledgeable and prepared to ensure the process go as smoothly as possible. The most important things that you can do are to carry out your own affordability checks. Also research into suitable loans and lenders.
To protect your credit file, you should only apply when you’re absolutely sure you’ll go ahead. Using a payday loan broker, such as Cash Lady, can reduce the impact on your credit file whilst increasing your chance of acceptance.
Loan brokers can also introduce you to lenders you might not otherwise have considered.
Short term loan companies are strictly regulated by the FCA and are subject to rules and regulations. High APRs can sound off-putting. Yet They are not a practical way to assess short-term credit options of this nature.
If you have trouble repaying your debt, payday lenders are naturally required by law to be reasonable and fair. Facing up to your financial difficulties, and contacting lenders on time, is the best way to begin to fix the problem.
If you do choose to make use of a loan broker, the Cash Lady online payday loan service does not include direct lending. You will have information about a lender that should accept your offer, so you can complete your application directly. Using Cash Lady does not mean that you’re under obligation to take out a loan.
Contact the Citizen’s Advice Bureau to receive a professional advice on legal and money issues.