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How Payday Loans Work
What is a payday loan? Here are the things you must know before taking out one.
A payday loan is a short-term type of borrowing that is meant to be settled by the next payday. Typically, a payday loan is only for small amounts of borrowing and is made available to individuals with zero credit history or a bad one. One must be cautious when taking out a payday loan since these loan products have exorbitant interest rates and fees.
Should I take out a payday loan?
If you have no other choice because your credit history limits your options, a payday loan is a viable solution. Payday loan lenders will typically not look at the credit history of a borrower but focus on more on the individual’s capacity to pay back the loan. This means you must have a steady stream of income either from employment or benefits. Payday loans are considered an alternative form of lending since it accommodates borrowers with different financial capacities and histories. Do remember that the amount granted to you will depend on your affordability as assessed by the lender.
Remember that a payday loan is considered a high-cost loan product. This means that the interest rates and fees are higher than what regular personal loans would have. You can obtain a payday loan if you meet the lender’s requirements. Some lenders have very basic requirements while some do perform a credit check. Before taking out a payday loan, make sure you meet the requirements of the lender since a rejected loan can further harm your already flawed credit history.
Emergency financial needs can be frustrating especially when you have no access to extra funds. If you have no savings to fall back to, one viable option for such a short-term cash need is to get a payday loan. A short-term loan, this can be a great alternative for your emergency borrowing needs.
These loans are usually for a small amount that you are then expected to pay on your next payday. You'll be expected to loan costs and interests on the due date too. They are traditionally paid in cash. In addition, they are known for having high interest rates. It has risen on popularity in recent years thanks to the fact that it is one of quickest ways that people can get access to funds which can be paid out by lenders on the very same day.
What to Use Payday Loans For
In the UK, people apply for payday loans for a variety of reasons. There are no restrictions on where and how they should be used, such as paying any emergency bill or even paying off other debts. While these loans used to be offered for a smaller figure in the past, these days, lenders can offer bigger sums payable over a longer period.
They are mainly designed to help those who are in sudden need of extra funds where other forms of credit may not be accessible. Due to the nature in which these loans are often availed of, most of the lenders offering them have streamlined their application process, thus allowing even some of them to get the funds paid out within hours from approval.
Can I apply for payday loans online?
It is possible for borrowers to process a payday loan application online. However, just like any type of loan offered in the UK, applications are going to be subject to affordability and credit checks. This is to ensure that the borrower can indeed afford the loan.
After these checks have been performed, direct lenders will also have to consider the borrower’s credit score before they decide. These, lenders that offer their services to bad credit borrowers now consider a number of criteria, instead of just focusing on their credit scores alone. A borrower also needs to be at least 18, a resident in the UK, has an active bank account, and should have some form of monthly income.
Short-term loans are becoming more accessible to people in the UK. While there are people that may be put-off by the high interest attached to payday loans, they do provide a great alternative to people who need to get access to funds fast. But they should not be looked at as a financial solution for the long-term and should only be considered in the direst of needs and as a last resort.