We all get strapped for cash from time to time. Sometimes those bills all arrive at once and leave us struggling to make ends meet. However, help is at hand in the form of payday loans. But these convenient loans can come at a high price.
If you need cash and you need it fast you will not have a lot of options. Even if you do qualify for personal loan it will probably take at least a few days to arrange, as will a credit card. You could also ask family or friends for a sub, but this is not easy and may not always be possible.
However, if you are in full-time employment you may be eligible for a payday loan to get you out of a fix. So, what exactly is a payday loan? Basically, it is a loan that can supply you with cash on credit within hours to tide you over until your next pay cheque.
Normally, you can borrow anywhere up to £1,000, though you may be restricted to a lower amount if it your first time using a payday lender. The unsecured loan is only intended to tide you over until your next pay cheque when it should be repaid immediately.
One of the big pros of payday loans is that they are extremely fast to arrange and sometimes there isn’t even any paperwork involved. Usually, you should have the money in your account within a few hours of applying. Some restrictions do, however, apply. You have to be over 18 and earning a reasonable net income each payday. And of course, your next pay cheque should cover the full cost of any loan you take out.
The application process usually just involves filling out a five-minute application form and providing proof of identity and income. Once your loan has been approved the money will usually be direct debited to your bank account within hours. Also, for convenience, the money will be taken directly from your bank account when your next payday arrives.
While there is no doubt that payday loans can be lifesavers if you are in a tight spot, this convenience comes at a high price. In fact, short of an unregulated 'loan shark', a payday loan is probably the most expensive form of credit you can find.
Different payday lenders calculate interest on loans in different ways. Some will charge interest by the day while others will charge a set amount of interest for the amount you borrow. What all payday lenders do have in common is that they charge extremely high interest rates. Typically, you will have to repay about £30 for every £100 you borrow. So, if you borrow £500, you will be repaying £650 come payday. There may also be other fees and charges.
At these rates we can not recommend a payday loan, except as a last resort. Even a cash advance on your credit card, which is also an expensive form of credit, would be a much better option. Failing this, you should ask family or friends for a short-term loan to tide you over.
If you really have no other option, then a payday loan could come in handy. However, if you do use one you should make sure it is paid back the day you are paid and it doesn't become an expensive form of credit that you use from month to month.