Are you frustrated because your car has just broken down? Maybe your boiler has packed in? You’re 3 weeks from payday, your bank balance is low and you’ve got no idea how to cover the cost of the repairs. The stress these factors cause is affecting the rest of your life. That’s where payday loans step in.
Payday loans are a type of personal loans that were designed to provide the convenience of borrowing over short periods or during emergencies. The original purpose was to cover you for one month until your wages are deposited, and some even offered reasonable weekly payments, but many lenders have now changed their service to benefit customers. Allowing them to repay their loans over slightly longer periods of 3 – 6 and even up to a duration of 12 months in some cases.
Where loans are repayable over shorter periods, lenders charge higher fees for borrowing. It’s not uncommon to see products with APRs of over 1000% but it’s important to remember that APR refers to the annual percentage rates, these products rarely offer borrowing over 12 months so the actual amount repayable will look quite different. Interest is capped at 0.8% interest per day or 100% of the total amount borrowed. Default fees are capped at £15. So, for example If you borrow £200, the maximum you can be charged in interest is £200.
Any customer looking to borrow instant payday loans should carefully consider their options as it’s expensive to borrow. Especially when compared to other types of personal finance like guarantor, secured or unsecured lending. Meaning, it could be easy to run into significant financial difficulties if you’re not capable of repaying any money owed to your creditors.
How do payday loans work?
When you apply, you choose the amount you need and provide personal details about your financial situation; income, expenditure and credit history. In addition, some financial products will ask questions about factors like the amount of dependents you have, the balance on any credit cards you own, or how much is left to pay on your mortgage. Essentially your financial status will be assessed.
The lender uses this information to carry out an affordability assessment, once it’s processed they will give a detailed decision on approval. It may seem like a lot of information to part with or an intrusion into your life but the lender only wants the information you provide to assess what is happening in your life financially. Once they have calculated the risk for both parties they will communicate their answer directly to you.
If your application is successful, the money is paid directly into your bank account. This can happen fast, with funds available to be accessed via your mobile banking or debit card within 24 hours. Earning these products the title of same day loans. You used to be expected to repay in full, plus interest, along with any charges at the end of the month.
Most payday lenders are changing their rules from receiving payments for the full amount borrowed, plus interest, one month after the loan is issued – to longer periods. The amounts on offer to a consumer differ from product to product but are usually relatively small, between £100 – £1000. This is also why these products are sometimes referred to as high-cost short-term loans.
They carry a wealth warning (that can be seen at the bottom of this page). The Financial Conduct Authority (FCA) regulate payday loans direct lenders and require that people are warned about the problems they could face if they struggle to repay the loan on time. This is due to the risks associated with the high representative APRs online payday loans carry.
What types of payday advance loans exist?
Payday loans often get referred to as other things, like installment loans for example. This makes it hard to choose the right direct lender which makes it hard to choose the right direct lender because there are many different options with very little difference. Our website covers these options in detail but to simplify things we’ve curated this list of alternative products that could also be considered a payday loan:
- Cash advance/Payday advance/ Wage advance/ Salary advance/
- Same day loans
- Instant payday loans
- Emergency loans
- Bad credit payday loans
- High cost Short-term loans
They all have these similar terms:
- £100 – £1000 loan amounts
- Repaid in installments on your next pay date, within 3 – 12 months of the loan being paid into your bank account
- APRs typically between 100 – 1500%
How do I get a payday loan with bad credit?
Payday loans companies will consider those with bad credit. Perhaps more so than other high street lenders or traditional UK loans. The reason people with bad credit are applicable is that the lender has already accounted for the risks of not receiving their money back with the high interest rates they charge.
Are online payday loans safe?
For the most part yes. They may be expensive but most payday lenders that appear on the financial services register are perfectly safe. There are of course companies online with a less than glowing reputation. Anyone not authorised to lend money should be avoided. This is why it pays to do your research before entering your personal details into any online application to protect yourself from scams, fraud and more generally not finding the solution to your problem.
It is important to mention the issue reported by the press regarding the situation of traditional payday lending in the UK. As we’ve mentioned throughout this article a lot of traditional payday lenders have started to review their processes.
The governance surrounding payday lending has become a lot stricter in recent years. Meaning, the FCA has shone a spotlight on payday lending to ensure consumers were being treated fairly. This involved looking at lenders acceptance criteria. The FCA realised they needed to do something when the amount of unpaid, defaulted payday loans increased. In 2013 UK customers borrowed £2.5 billion from payday lenders and in 2016 payday lenders were made to compensate millions in redress to thousands of consumers. This resulted in the closure of some businesses. Where companies failed to meet the conditions the FCA expected they could no longer operate and stopped new lending. The most notable casualty was Wonga loans.
This doesn’t mean all online payday loans companies are out to rip you off. After many payday loans cases were reviewed and guidance was offered to payday lenders on more accurately assessing personal circumstances most took it on board and, as we’ve stated, made the necessary change.
All of the lenders we work with are authorised and can be found on the financial services register. We refuse to work with anyone who fails to comply with FCA regulation and doesn’t continually evidence they treat customers fairly through great customer service and being a responsible lender.
What are the risks of taking out a payday loan?
The risks have been well documented in the press, where a less than friendly view has been taken of payday products. There have been many complaints by consumers who have run into financial difficulty as a result of using these products. Workers in the media have quite rightly questioned whether a large portion of the market has protected the rights of their customers or acted in their best interests.
Some customers had been funded loans they clearly couldn’t afford, others relentlessly marketed to, to take out further unaffordable loans racking up insurmountable debts, and overall, the practice of payday was seriously thrown into contention.