What are Payday Loans? A quick guide from Cash Lady

What are Payday Loans? A quick guide from Cash Lady
February 17, 2016 Cash Lady
What are payday loans?

Payday loans have become popular in the UK. They are a quick and relatively easy-to-use form of finance to tide you over from one payday to the next. Used responsibly, they can be the perfect solution to a one off cash shortage. Payday loans are flexible and the process of application is relatively straightforward. This is a short guide to all aspects of payday loans, from how to make an application to how to borrow in a responsible way.

What are payday loans?

These quick loans are a short-term type of finance that you can use to borrow money before you next get paid. The money is repaid from your next pay cheque, along with the interest charged. You can use payday loans can used for just about legitimate any purpose.  Most people tend to use them for emergency situations. For example to pay for emergency repairs or replacement for an expensive possession, such as a TV.

Who can apply?

You need to be at least 18 years old to apply for this type of finance. There are few requirements for application but you do need to be a UK resident to make an application. You must also have a UK bank account into which the loan money goes and from which it can be repaid. Most payday loans are strictly for employed applicants, and based around your payday. Applications are not usually accepted from anyone who isn’t currently in employment.

How do you apply?

Applying is simple and straightforward, as the entire application is online. You can complete the process in about the time it takes to drink a cup of tea, that’s how easy it is! You will find out whether your loan is approved so you don’t have to wait around for a decision.  The final approval for your application will follow shortly after that. You don’t have to go to a bank or offices to make your application. You also don’t have to spend hours on the phone waiting to speak to a representative. All the information is input via the website and the application works at the touch of a button.

How do payday loans differ from other types of finance?

One of the differences between payday loans and other loans is the speed of application. You could have the cash in your bank account in a matter of hours if that’s what you need. This makes payday loans particularly useful for situations where you need the cash fast. This also differentiates them from other, more traditional forms of finance. The requirements are fewer than bank loans or credit cards, and decisions are quicker.  This makes payday loans potentially one of the most convenient forms of finance around.

Another difference is the choice you have when looking for payday loans. There are many lenders and many short-term loan products on offer. You are not tied to any particular financial institution that you already use.

Are there charges to pay?

No. You should not have to pay any fees or charges to make an application for a payday loan in most situations. Interest will be payable on the amount that you borrow and this is usually repaid at the same time as you repay the main loan. The sum is taken together using continuous payment authority. This means you don’t have to calculate the interest payment yourself and you don’t have to worry about forgetting to pay either. The interest is usually payable at around £24 for every £100 that you borrow.

How can I borrow responsibly?

The key to responsible borrowing is making sure that you can afford it. We could all get into a little trouble with our finances sometimes. This is usually because we haven’t thought the situation through. Before you apply for payday loans, make sure you work out whether you can afford to make the repayment on time. This means calculating your incomings and your outgoings.  You need to make sure you have enough to make loan repayments as well as have enough for your living expenses. Leaving yourself with too little is not responsible borrowing.

Student loan debt concept. Woman with heavy box

What is the ‘cycle of debt’?

Many people have concerns about payday loans and falling into a cycle of debt.  This is often one of the biggest concerns of all with short term credit. You can avoid this by making sure that you’re borrowing within your means. A cycle of debt describes a situation where you take a payday loan but when it is repaid you do not have enough money left to live on.  In these cases, the loan has to be retaken or another loan applied for. You can avoid this by following the budgeting steps above. Also, you need to make sure that you can afford to borrow the loan before you make the application.

How do I repay payday loans?

Upon approval, a date for repayment will be set. This is usually around a month after you borrow the money and should be at a time after you next get paid.  That’s the point of payday loans after all! If approved a direct debit is set up so that the repayment is automatic from your bank account on the agreed date. As mentioned above, the payment will include the interest and the loan amount together. This way, you won’t miss the repayment date or have any issues with late payment.  Also, you can relax knowing that the money will be repaid from your account.

Are payday loans good for my credit score?

Payday loans are another form of finance.  If you can prove that you can sensibly manage your finances and credit commitments, future lenders may take a more favorable view. This is not the case where there is evidence of default on loans or where credit card borrowing are poorly managed. Read more about what are bad credit payday loans. Read the following guide if you are looking for an alternative to payday loans with no credit checks