A payday loan is a fairly new type of loan which is quick to arrange and lends small amounts of money. It is good to make sure you know what it is and how it works so that you can work out whether it is a loan that you should consider taking out.
How do the loans work?
So a payday loan will normally allow anyone to borrow hundreds of pounds, usually a maximum of a thousand. Therefore it is only suited for smaller purchases. It can be arranged very quickly as there is no credit check and customer services tend to be available all the time to get the loans arranged. This means that if you need money very quickly, this could be a good option for you. No credit check is carried out either. This is one of the reasons that the loan can be arranged so quickly. It means that the money is available to anyone that needs it very quickly.
The repayment of the loans tends to be different to a conventional loan. With a conventional loan there is usually a repayment plan where you will be required to repay a certain amount each month for a certain time period. With a payday loan the amount borrowed is small and therefore you are usually expected to repay it all in one go. This means that you will need to repay the full amount borrowed and the fees all together. This is set up so that a direct debit is put in your current account just after you are due to get paid so that there is a high chance that there will be enough money available to repay the loan.
Who are they designed for?
Payday loans were originally designed to help those with a poor credit record. As there are very few borrowing options available for anyone in this situation short term loan companies were set up so that they had a borrowing option. This is why there is no credit check done on a payday loan. The companies are taking on quite a risk by not doing a credit check. This means that they have to charge more money than those companies that do carry out one.
They can also arrange loans very quickly, sometimes within a few hours. This means that if you have an emergency where you need money very quickly, then they can help with this. If you have an overdraft or credit card, then getting money quickly is easier but if you have a poor credit record or have used up your credit limit on your overdraft and credit card, then you will find that it is a lot trickier to find the money and therefore a payday loan can help.
So the loans are predominately for anyone with a poor credit record that needs money quickly and has no other options available for them.
Are they right for me?
Deciding on whether it is right to take any loan is a tricky one. There are many things that it is important to think about. Firstly, all borrowing is expensive and so you should only use it if you have to. If you can wait for the money then it is best to do this. Use savings if you have any or wait until you next get paid if you can. Payday loans are expensive and so if you can borrow using a cheaper method then this is advisable. Whenever you are borrowing money you should always compare all methods to see which you think will be the best one for you.
You should also always consider the repayments. Find out how much they will be and when you will be expected to pay them. Then you will be able to work out whether you can afford them. To do this take a look at your past bank statements and see whether you would normally have enough money available to cover the repayment. If not, consider whether there are any changes that you can make which will enable you to be able to afford them. It is also important to compare loans to see which is the best. There are a lot of payday loan companies and if you can find one that is cheaper than the others but still provides what you are looking for then this could be a good option for you. Even if you are only saving a little bit of money it will make a difference. Therefore make sure that you always compare them.
So when you are deciding if they are right for you need to go through several thought stages. Decide whether you really need to borrow. Consider all your borrowing options and see which looks best price wise as well as being the most suitable for your needs. Compare loans of that type to see which looks best. Then make sure that you can afford to repay the loan.
Once you have been through this process you will be able to decide whether the payday loan is the right option for you.