Your Quick Guide to Payday Loans
Payday loans are probably the most controversial personal loan options available in the UK today, and for good reasons. Payday loans are easy. If you find yourself in need of cash today, all you need to do is apply for a payday loan and you’ll get your money within hours. There’s just one hitch. Payday loans are an expensive way to borrow money.
Many financial experts will tell you to never take out a payday loan because of its high cost. But then there are also desperate financial circumstances when you may have no other choice but to resort to a payday loan. If this the case for you, then this quick guide will help ensure that you’d at least get a good deal on your payday loan but first let’s understand what payday loans are and how they work.
What are payday loans?
Payday loans are widely available in the UK. It is a type of unsecured loan specifically suitable for borrowers with bad credit. If you are of legal age and you are employed then you can easily avail a payday loan. With a payday loan, you can get quick cash from as small as £100 to as much as £1000, which you can use for a wide range of personal needs. Maybe your car broke down and you need cash for repair. Maybe your rent’s overdue and your landlord’s hounding you to pay up. Whatever financial problem you may be stuck on, a payday loan may just be the quick solution you are looking for.
How do payday loans work?
If approved for a payday loan, you must repay it back in 29 days or as the name of the loan implies, on your next paycheck. On the date of your repayment, your lender will automatically take the full amount including interest off your bank account whether you have other bills to pay or not. If your account doesn’t have sufficient balance, you’ll be faced with late penalty fees and other charges. It would be best to ensure that your account always has enough to cover for loan payments. Otherwise, you’re only creating more financial complications for yourself.
How costly are payday loans?
If you ask financial experts, most of them will tell you to avoid payday loans no matter what. And they are correct. Considering the high cost of payday loans, the financial product should only be considered when you have no other choice.
In general, the representative APR for payday loans is 1,000%. If you avail a payday loan, you will usually be charged with £25 to 35 in interest per month per £100. If you’re late with your repayment, expect to pay an even higher interest.
What to remember when taking out a logbook loan?
Despite the steep cost associated with payday loans, many borrowers with bad credit continue to resort to the financial product. If you have a poor credit rating yourself and you have no other option but payday loans, keep in mind a simple rule of thumb of borrowing money. Borrow only what you can afford. And make sure that you pay off your debt on time to avoid higher interests.
Getting caught up in the debt trap is another danger to think about when taking out a payday loan. Because the loan is easy, it’s even easier to keep renewing your loan, which is something you should avoid doing. Borrowing once is understandable but a regular renewal of a loan product with steep interest rates is another matter altogether.