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Payday Loans: General Information, Pros, And Cons

by Jim ONeil on November 3, 2012

in Personal Finance Tips

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UK consumers who need a short-term loan that they can repay with their next paycheck are finding this in payday loans. They can borrow approximately £50 to £1,500 and use the money as emergency cash. These are not the loans cheapest on the market but are instead intended for short-term borrowing. The interest rate is listed as an APR, which makes it seem very high. However, due to the short-term nature of this financing, typically only about £20 to £50 is charged for every £100 borrowed.

A payday loan is easy to get because many lenders offer short applications that can be completed online and some pay out money in a matter of minutes. In most cases, there is no requirement to fax or email supporting documentation. Many lenders offer no credit check loans of this type, allowing consumers with poor credit or a CCJ to get emergency cash. If the loan application is completed very shortly before the next payday, the lender will usually extend the term to the following payday.

Before issuing their decision, lenders typically verify bank details and employment information provided by the applicant. Some lenders offer instant or next business day approval, while others take a bit longer. Those who conduct credit checks usually require the longest for approval because a thorough investigation takes time. No credit check loans typically offer the quickest turnaround time.

Though they have until the end of the term, some borrowers repay their loans early to reduce their interest charges. For others, the money is debited from the bank account on the next payday. Many lenders allow borrowers to roll a loan to the payday following but this will incur additional interest and fees. In general, rolling over the loan is not recommended because a small amount of financing can quickly become big debt.

Payday loans have several advantages over unsecured or personal loans bank provided. They represent a quick way to get cash before the next payday without having to ask friends or family members for money. Many lenders offer an online application and do not conduct a credit check or require supporting documentation. Acceptance and money transfer occur quickly and without a trip to a bank. In addition, this financing can improve credit rating.

Before taking a payday loan, consumers should be aware of the disadvantages. The loans APR is much higher than conventional financing like a bank personal loan, which can lower disposable income. Payday lenders can impose an assortment of fees for loan acceptance, rollover, late payment, arrears, collections, and more. If the borrower defaults on payments, credit rating could be affected. Incorrect use of this financing can result in financial issues.

Consumers should have a solid plan before using payday financing. There should be a valid reason for taking the loan. A financial plan should be developed that allows the loan to be repaid within the initial term. In addition, prospective borrowers should comparison-shop for the best interest rates and terms and should always read the fine print.

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