Payday loans may be something that you have heard about, perhaps in the press with stories of people struggling with them or by seeing advertisements for companies that offer them. It is good to know exactly what they are so that you can work out whether they are a type of loan that you might consider.
What are payday loans?
Payday loans are a form of borrowing that was designed specifically for those with a poor credit record. Also know as no credit check loans, it was realised that there were very few options for borrowing for those with a poor credit record and therefore there was a gap in the market and payday loans came about. These lend to anyone who has an income, bank account and is over 18 as long as they have no other loan with that lender. The loans are usually for smaller amounts of money than personal loans from a few hundred to a thousand pounds generally. The lender will offer you an amount of money depending on your circumstances and you will be expected to repay it all on the day that you get paid. You will set up a direct debit so the money automatically goes out on that day and then there is less risk that it will not be repaid.
How much do the loans cost?
As the lenders are taking more risk than traditional lenders do, due to the fact that they do no credit check, it means that they are more expensive than most traditional loans. The costs do vary though, between different lenders and it does make sense to compare them, if you can, to find that one that will be the cheapest for you. You will be charged interest and possibly fees as well for borrowing. The amount you are charged will depend on how much you borrow and how long for. Usually a payday loan will just last a few weeks, but each extra day, will add on extra cost to the loan. If you can find a cheaper loan, it could make quite a significant difference to the amount that you will have to repay.
Is the loan right for me?
Choosing whether the loan is right for you can be pretty difficult. You need to consider a lot of things the main ones being:
– Do I really need the money?
– Am I prepared to pay the cost of the loan?
– Can I afford the repayments?
It is important to only ever borrow money if you are desperate for the money and have no other options available. Loans are always expensive and so it is wise to always make sure that they are a last resort. You then need to choose the type of loan that you will go for and it is wise to compare different types, work out which will be most suitable for your needs and which type you are likely to get based on your financial situation. Then compare loans of this type to find the one that is the cheapest for you. It is important to find out about the amount that you will have to repay and whether it will be a lump sum or more than one payment. It is important to be aware of this so that you can work out whether you can afford to make the repayment(s). It is good to think about how much money you tend to have available and whether there will be enough to make the necessary repayments.
These factors are no different to the things you should consider with any loan. The reason that it is so important to think about this is that if you miss a repayment you will be charged by the lender. This means that the loan will end up being even dearer and you want to avoid this if you can. With a payday loan, they are known for having very high charges if you do not repay on time and so it is wise to protect yourself against this by making sure that you can afford the repayment. If you think that there is a chance that you will not repay, but you still want to go for the loan, then compare the late repayment fees on the loans to see which looks like it will be the most reasonable. This might seem like a negative approach, but it is wiser to plan for the worst and hope for the best rather than go in unprepared and end up paying out a lot more than you planned for.