How It Works

A Basic Comprehensive Guide to Payday Loans

If you have never heard of payday loans or you have but are curious as to what they are and how they work, there are many features and terms you will want to know. Understanding the application process, the pros and cons, and what they are used for is essential to determining whether or not a payday loan is the right option for you or not. This brief guide can help better acquaint you with this lending option by breaking down information such as: what a payday loan is, how it works, what the benefits and risks are, whether or not you are eligible to apply for one, and what is needed to apply. You will see how they are both similar and dissimilar to other available loans, and how to go about looking for a good, reputable lender should you decide to apply for one.

Payday Loans 101

In general, a payday loan is a type of loan that offers immediate cash for a short term. It is also commonly called a cash advance loan because it is based on advancing money to you that you do not yet have in your possession but will in the near future. It is called a payday loan because it allows you to borrow the amount of your next pay check or at least a portion of it. Once you are approved and you receive the money, you typically have until you receive your next pay check to pay the money back. This short term loan usually runs anywhere from fourteen to thirty days, however many lenders allow you to request an extension if there is an emergency. If you do need to request an extension for whatever reason, you will then be subject to extra finances charges or penalties for not being able to pay the money back on time. So what are payday loans for? The average loan amount ranges anywhere from 50 to 2000 pounds and is designed to be used primarily for dire emergencies such as unexpected medical or educational expenses.

Pros, Cons, and Features

Just like any other loan, cash advance loans have their risks and their advantages. The nice thing about these loans is they are in many ways a low risk option and are very beneficial to the borrower in comparison to other lines of credit. The decision of whether or not to apply for and utilize a loan heavily depends on looking at both the pros and cons first. Looking at the option from two different perspectives allows you to see a more holistic view of what you are getting yourself into. It helps you to be realistic and to see if the advantages outweigh the disadvantages—much like the warnings on prescription medications!

The largest criticism of payday loans is the high interest rates that are assumed to accompany their usage. While high interest rates are a reality for many short term loans, there are many factors that depend on the rate itself. Your lender may assign you a high interest rate, but what you pay in the end can vary depending on how quickly you pay it back and how much you borrowed in the first place. The interest you end up paying for a payday loan may not necessarily burn a hole in your wallet as long as you pay the loan back as quickly as possible and choose a lender that has fair, trustworthy rates. Just as with any other service, it helps to be alert to companies who charge sky-high rates. These companies may not be as legitimate as some of the other companies out there.

The other criticism is that people who are already in debt utilize them as a “rescue” source only to end up burying themselves in more debt due to the fluctuating interest fees and costly finance charges. As with any lending option, this common conception (and criticism) may hold a shred of truth. Most financial professionals advise against using a payday loan if you are attempting to consolidate debt or if you intend on using it for unnecessary purchases. If used irresponsibly, there are certainly potential risks. You will find that some of these drawbacks are myths and do not apply to every single payday loan.

The good news is there are plenty of benefits of using a payday loan which balance out the aforementioned disadvantages. In fact, if you are a responsible borrower who has a legitimate, reliable income source, the benefits can definitely make applying for one worth it. First, payday loans are convenient. Not much is needed to apply for one, the restrictions are not very tight, and the fees and repayment periods are quite reasonable. To apply for one, you need proof that you reside in the UK, proof of regular employment, and a valid debit account. Your pay check and debit account are what “secures” your loan. No other collateral is needed, unlike other personal loans or equity lines of credit. You can apply in minutes, receive a decision instantly, and your money will be wired to your bank account the next business day if not the same day you apply.

The Payday Loan Application Process

The application process for a payday loan is another benefit in itself. It is virtually painless, available on-line through comparison sites or directly through a payday loan lender. First you will present documents and personal details such as:

● Proof of UK residency

● Proof of employment

● Proof of a valid debit bank account

● Phone number

● Address

● Requested loan amount

Once you fill out the quick application and provide these details, you will receive a decision within seconds. If you are approved and you applied on-line, the lender you chose will contact you directly to provide you with a quote and any instructions. The money is directly deposited to your account and is available immediately for your disposal. The best way to ensure a smooth experience is to do your homework and choose a trustworthy lender. Ask around to see if anyone you know can recommend someone, and do not hesitate to utilize an on-line comparison site lender. You will not only have a list of lenders to compare available at your fingertips, but you will be able to scroll through the different options and rates each lender offers. Comparison sites are quick, easy, and very secure. These tips can help inform you of the basics of payday loans and will hopefully aid you in your borrowing decision.