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.