Author: Jamie Hughes

What is a payday loan?

Payday loan is the term given to an amount of money that’s issued at short notice, usually with a high-interest rate attached to it.

Payday loans are usually taken out at the end of a financial month to tide a person over from one paycheck to the next when they need money quickly. Payday loans are usually smaller in value when compared to other type of loans, anywhere from £50 – £2,000.

They come with tough repayment terms, and in recent years have had to be highly regulated by the government.

The amount of money you can borrow through a payday loan varies, but is based on your salary and how much the lender believes you can pay back. Payday loans are generally taken out month to month, with one-month repayment terms. Sometimes this can be extended, but it’s never more than 3 months. Interest will be paid back at the same time as the loan is.

Failure to repay the loan and the interest on time at the end of the month will result in an even higher penalty charge the following month, and so on until the debt is cleared. In financial terms, they are classified as an unsecured personal loan.

Who are payday loan lenders in the UK?

The UK has a large number of different payday loan lenders across the country. You should always check your provider is reputable, as this type of loan isn’t usually dealt with by more traditional banks.

Popular payday loan lenders in the UK include Lucky Loans, Sunny, THL Direct, QuickQuid, Mr Lender, PiggyBank, Cashfloat, Wizzcash, Loan Pig and many more.

What can I use a payday loan for?

Payday loans can be used for anything. There are usually no stipulations on what the money is used for, as long as you can meet the repayment terms and interest charges.

Commonly, payday loans are taken out to cover short term expenses such as bills, rent or mortgage payments. There could be a medical emergency, or a housing emergency, such as a broken boiler, that needs replacing.

If you’re laid off, you could even find that you need a payday loan to get you through in the short term while you look for more work or financial assistance. There are a great many uses for a payday loan, and you can even find people using them for simple groceries or other activities where they need upfront cash, quickly.

Are there any alternatives to payday loans?

Payday loans are risky financially, and there are a few alternatives you should consider beforehand. If you have friends or family you can borrow from, this can be a safer alternative, or you can approach your regular bank for a more traditional loan.

Historically, payday loans come with their fair share of problems, for example; taking out a payday loan can damage your credit score and make it quite difficult to improve particularly in the short term. In order to improve your credit score after taking out a payday loan, the loan would need to be repaid in full along with any interest rates.

You can use credit cards where possible, look at a credit union, or even seek government finance or benefits. These methods are all varied and will depend on your own personal circumstances, and for many, a payday loan might well be the best choice available.

If that’s the case, then always make sure you can meet the repayment and interest terms, as the debt can spiral out of control if not paid off on time, in which case you’ll then be looking at debt consolidation services later down the line.

While payday loans carry financial risks with them, if they are used in the right circumstances and with the right advice, they can be extremely helpful financial tools for those in need of quick monetary relief from one month to the next.

How to improve your bad credit rating

If you are hoping to take out some products on credit, from a store card or credit card to a mortgage or loan, it is essential that you know your credit score. This score will be used to assess your suitability for credit, and will be the key factor in determining whether you can access those products. If you have a bad credit rating, you might find your options limited. But what exactly is a bad credit score – and how can you improve it?

What is a bad credit rating?

Lenders use your credit score to decide how much of a risk you pose when lending to you. Created from your financial history, there are three main agencies which lenders use to assess credit reports: Experian, Equifax and TransUnion. Each has slightly different criteria, so your score might differ slightly between each.

A ‘bad’ credit score is one that falls below a certain threshold. Individuals with a ‘poor’ or ‘bad’ score will find it much harder to access credit and will have to pay higher interest on any forms of credit they are able to take out.

What causes a bad credit rating?

Debt is the main cause of bad credit ratings. If you have active debts in your name, even if they are several years old, then your credit score will reflect this. Missed payments on credit cards or loans can also reduce your score.

Taking out certain types of loans that may indicate that an individual is struggling to cover the costs on monthly bills such as payday loans and other short term loans can also damage your credit history. Payday loans come with quite a bad reputation, especially in the eyes of potential lenders and credit reference agencies due to their high interest rates. Payday loans are seen as a type of loan that many people turn to as a last resort as the threshold to be approved for such a loan is so low.

Other factors that can affect your score are less obvious. Living with a partner who has debt, where your financial accounts are linked, can impact your own score. Lacking in credit history also reduces the overall rating. If you have never had any form of credit, then it is much harder for lenders to assess you.

How can I improve my bad credit score?

Improving bad credit is not something that can be done overnight, it requires a bit of patience but most importantly good organisation when it comes to managing your finances.

One of the first things to do if you want to improve your credit rating is to make sure you are on the electoral register. You should also request your credit report from one of the agencies listed above, and go through it to check your details are correct. Make sure all addresses linked to your name are accurate. You can request corrections to be made on your report in the event that something is linked to your account in error.

If your poor credit rating is due to a lack of credit history, you can improve your score by taking some low-risk forms of credit out. A mobile phone contract or a low-limit credit card can help here. Make sure you pay your bill in full each month, as this will build up your score and show lenders that you can manage credit responsibly.

If your poor rating is due to debt that is six years old or more, you can place a note on your file to indicate this. Debts should fall off your report after this time. If you have new debt, it is important that you take steps to pay it down as soon as possible. Contact your creditors to arrange a payment plan, clearing the highest balances first.

Can I still borrow if I have bad credit?

It is still possible to get a loan with a bad credit rating, depending on which direct lender you apply with; though you are likely to pay much more in interest and fees. Not all lenders will consider you with bad credit; however, some specialise in lending to people with low credit scores. The best way to improve your score is to keep borrowing to a minimum, and instead focus on your repayments. This will raise your score and open up more favourable rates and products for you.

Tips to ensure you are financially secure whilst on furlough

With the ongoing coronavirus pandemic affecting all aspects of our lives, including shutting down all non-essential businesses, many people have found themselves temporarily laid off by their employers. If you are one of those who have been furloughed, you might be feeling the pinch as your wages are cut.

Some employers are paying staff in full during this time, but most are offering 80% of wages. This is the amount that the UK government is subsidising, during the weeks and months of ongoing lockdown in the country. If you are one of those taking a 20% pay cut, you might be wondering how to manage your finances to get you through this time. Below are some tips for cutting your expenses.

Payment holidays on loans, mortgages, rent and bills

Worrying about paying the bills? It is possible to defer some payments, such as credit cards and loans, for a period of three months. You will need to contact your lender to request this. Mortgage holidays can also be arranged on request.

Rent will still need to be paid, but your landlord might be able to offer a reduction, or suspend payments, if they are able to request a mortgage holiday themselves or if they can afford to cover the losses through insurance or personal funds.

If you are experiencing financial hardship, you can contact your energy providers and local council to discuss reducing bill payments, deferring for a month or two, or making some other arrangement to keep your costs down.

If your furloughed wages take you below the threshold for benefits, you should make an application through the Government portal. Universal credit can help with everything from household expenses to rent and bills.

Full refunds on travel bookings

Almost all flights in and out of the UK have been grounded, and the Foreign Office advises against all non-essential travel for an indefinite period. If you had a holiday booked, you will need to contact your travel provider to request a refund. Some travel providers are issuing refunds as standard, while others will offer a credit note for rebooking in the future. If your trip is insured, your insurer, or your credit card provider, should be able to help you get your money back.

Reduced spending on travel costs and social activities

As we all have to stay home, you should find that your travel costs and leisure spending have fallen significantly, and this should go a long way towards boosting your finances. From to-go coffees and takeaway sandwiches to taxis and meals out, those little spends we all make soon add up – and you might even find yourself able to save a little, despite the loss of income from furloughing.

Staying home also means more time for home cooking, so put down the takeaway menu and create tasty meals from scratch at a greatly reduced cost. Have a movie night at home and save on cinema tickets, and enjoy social distancing drinks with friends over video calling apps, without paying for expensive rounds in bars.

Working while furloughed

Some people on furlough have taken up temporary work to boost their income, while still receiving their 80% pay from their employer. As long as you discuss this with your bosses, and make sure HMRC is aware of your extra work, you could earn extra cash by carrying out an essential role. Supermarkets and food delivery services, in particular, are recruiting extra staff to deal with high demand.

Alternatively, you could look for freelance work from home during the furlough period. Again, make sure you clear this with your employer and stay within the terms of your contract.

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