You may have seen advertisements or read about payday loans and wondered whether they are the sort of loan that you should consider. It is worth taking some time to think about this because you never know when you may need some extra money. If you need money quickly, you may not have the time to research different loan times and so it is good to do it now.
What is a payday loan?
A payday loan is a loan which is for a small amount of money that usually needs to be paid back when you next get paid. It is designed to keep you going until your next pay day and a direct debit is set up so that the loan is automatically paid off when you get paid. They can be arranged very quickly which means that you may be able to get the money the day that you apply. There is also no credit check which means that even if you have a poor credit record the loans are available to you. The lenders are taking a risk though, because of this and therefore the loans can be quite expensive but as long as you pay them back on time, they can be a very useful thing to have if you are in financial trouble. Like all loans though, it is important to think hard before taking them out as they do cost money and you have to commit to being able to repay them.
Who are payday loans for?
Payday loans are for those with poor credit records so that they have a way of borrowing money as it is unlikely that they would be able to use any other types of loans. However, they can also be useful for anyone who needs a small amount of money in a hurry because they are arranged much more quickly than a conventional loan. In fact they will normally lend to anyone who has an income, a bank account and is over 18 and does not already have a loan with them.
How do payday loans compare to other loans?
If you have other loan options, then it is always worth comparing to see which will be the best for you. There are big differences between loan types and it is good to make sure that you have an idea of how each works and which might suit your needs the best.
Some loans fit specific purposes, such as student loans, mortgages and car loans and so you only want those if you were buying a university course, home or car. However, there are also many more general loans, such as personal loans, overdrafts, credit cards, logbook loans and things like this which people use for all sorts of things. Some will need a good credit record and so this may restrict you and mean that you will not be able to get a personal loan, overdraft or credit card. With a logbook loan you need a vehicle with some value in it to use as collateral.
A personal loan tends to be for amounts over a thousand pounds. This means that you may have to borrow a lot more than you actually need and repay it back over a long term. Although this will help to spread the cost, you will be paying it back for longer and have more money than you need. Borrowing too much, can be a big problem because if you spend it on things that you do not really need, they will end up costing you a lot of money if you factor in the loan cost. You will also have a loan hanging over you for a long time, unless you are allowed to repay it early.
With a credit card or overdraft you can borrow smaller amounts but they can be expensive. If you draw cash on a credit card you will be charged interest immediately and this can be extremely dear especially if you do not pay it back quickly. An overdraft could be cheaper, but if it is unauthorised it can be one of the most expensive ways to borrow. Loans like these two have no repayment plan and this means that you do not have to pay them back on a certain date. This can be risky as it may mean that you decide not to repay them very quickly and this will mean that the costs of the loan will increase. These two types of loan are also always available to you once arranged. This means that you can use them whenever you want. This may sound great, but you will need to be self-disciplined enough to make sure that you use the facility wisely. If you pay a credit card back each month in full before you get charged, it can be extremely useful, but if you do not pay it all back, then the debt can last a long time and therefore be very expensive. If you think that you will not be good at paying it back, then it could be better to have a loan with a fixed repayment schedule.