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Understanding And Using Payday Loans Responsibly

by Jim ONeil on February 23, 2012

in Payday Loans News

Payday lending has existed for several years but has recently become more popular due to television advertising and other promotions. Fallout from the 2007 recession has made it difficult for many consumers, especially those with poor credit, to obtain financing.

Payday lending is a quick and easy alternative to loans bank provided. The process does not involve a credit check or loads of documents. In many cases, it can be completed entirely online.

Getting a loan from a bank can take weeks or even months. Many UK households need cash quickly to address short-term financial gaps. Payday loans offer fast access to small amounts of money that are repaid on the following payday. Some lenders instantly approve loans and provide funds within minutes via direct deposit to a bank account.

No credit check loans are attractive to consumers whose credit rating has taken a beating in recent years.

Loan terms typically range from one week to 30 days and the amount is capped at around £1,000 to £1,500. A bank loan does not usually feature these terms because it can take 30 days just to fund a loan and banks often do not deal with small financing.

Payday loans APR, or Annual Percentage Rate, is usually much higher than the APR for a bank loan.

Reasons for this include the risk represented by poor credit borrowers, the shorter term, and smaller loan amount.

APR is based on a 12-month period so when it is applied to short-term borrowing, it appears very high. Prospective payday lending customers should calculate their actual interest payment to determine whether the rate is reasonable, from their perspective.

They should use this information to compare different no credit check loans to find the best deal. Reputable lenders clearly display their loans APR on their website and provide examples of repayments based on different amounts borrowed.

There may be other charges associated with this financing and consumers should understand each of them. Experts caution against taking out more than one payday loan at a time. This financing should only be used for essential reasons like emergency expenses, not to purchase luxury items like jewelry or designer clothing.

When completing a payday loan application, the individual should be honest regarding income and employment. This information is used to determine the maximum amount that can be borrowed without contributing to long-term financial issues. If consumers believe they will have difficulty repaying the loan, they should not proceed with the transaction.

Family or friends may be willing to loan the money with more flexible repayment terms.

Before signing a loan agreement, the borrower should review the document and make sure the repayment amount and payment due dates are correct. It may be possible to defer or rollover a payday loan but this should be avoided because it incurs additional charges.

Borrowers should deal directly with a reputable lender or a broker who has relationships with a group of responsible lenders. Complaints should be directed to the lender and if resolution does not result, reported to the Financial Ombudsman Service.

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