A payday loan is a type of borrowing that some people know little about. They might even just assume it is not for them and then never consider using one when they are choosing between different loans when they are borrowing. However, it is really sensible to have a good idea of how all loans work and then you will be able to think about whether you are making the right choice, when you are picking between loans, the next time you need to borrow.

Main Features of Payday Loans

Payday loans have a few main features which make them very different to other loans and these are the things that are worth noting so that you can be sure that you can easily know whether this loan will suit your needs. The first feature is that amount that you can borrow. With a payday loan you tend to be offered between £100 and £1,000 and this is a relatively small amount which could be handy if you do not want to build up a very big debt. It is good to know though, that if you are a first time borrower, it is likely that you will only be allowed to borrow small amount of money until you have repaid it on time and shown that you can be trusted. This is because the lenders do not worry about your credit record.

Payday loans came about because it was observed that those people with a poor credit record could not borrow money. Therefore, the lenders do not take much notice of the credit report and will lend to most people but they are cautious in the amount they lend as they know that there is a bigger risk that they will not be repaid.

The loans have to be repaid very quickly. The idea is that the money will keep you going until you are next paid and therefore when you next get paid you will be expected to repay all of the money you borrowed plus the interest and fees. This means that you need to come up with a lump sum of money all at once.

The loans can be arranged really quickly. They were designed to help out in emergencies and therefore they have to arranged quickly. It may be possible to get the money that you want to borrow within a few hours, but this will depend on the lender and so you will need to check with them to find out, particularly if you do need the money really fast.

Who are they for?

So, the loans are for people who do not have a good credit record and still need to borrow money, but only those that need a small amount. They can also be handy for anyone that needs to borrow money in an emergency as they can be arranged quicker than a lot of other loans. They are also handy if you only want to borrow a small amount of money or want a loan that will not last very long.

There are other loans that are similar so it is worth thinking about those as well. For example, if you do not want to repay right away an instalment loan is very similar to a payday loan but you spread the repayments over a few months to make it easier to manage. If you have a poor credit limit but want to borrow a bit more money then a guarantor loan could suit you. If you do have a good credit limit then it could be wise to get an overdraft or credit card arranged so there are there in case you need money in an emergency, as you can get money from them immediately.

Whenever you are thinking about whether to take out a loan, it is important to go through a long thought process and lots of research. This is true whether it is a payday loan or not. However, we will deal with a payday loan in this example and work through what you should be thinking about.

Do I Need a Loan?

It is wise to start by asking yourself whether you really need a loan. Borrowing money is expensive and so it is a good idea to avoid it if you can. Think about what you are using the money for and whether you really need it. Consider whether you can wait for it and save up and also think about whether you have savings already that you could use. Using saving is tricky as we might like to have some just in case, we need them or we might be saving up for something specific. But they can be replenished and it will usually be cheaper to use these rather than borrow. If you feel that you will find it too hard to save up, think about a way that might help, such as setting a regular transfer into a savings account.

How Much am I Prepared to Pay?

It is a good idea to think about how much money you are prepared to pay for the loan that you are taking out. You need to consider the fact that all loans have a cost which you will need to pay and you need to consider how much you can afford and want to pay. Think about what you are using the loan for and the cost of that and then how much more you are prepared to pay for it in order to have it and that amount so how much you are prepared to pay for the loan. You might find this hard but start at extremes – you would be prepared to pay a few pounds extra but not a few million pounds and then move more towards a central figure until you have pinpointed a range or amount that you are prepared to pay.

What Can I Afford to Repay?

It is also well worth taking a look at your financial situation in order to calculate how much you can afford to repay. This will vary between different people and you will need to look at your bank statements in order to work it out. Take a look at what you get paid and what you normally have to pay out and this should help you to be able to work out how much you have left to be able to pay out. You may have to cut back on spending in order to do this, so only allow for this if you are completely sure that you will be able to do this.

Is the Loan Type Good Value for Money?

Now you need to look at all of the different loans to see which will fit your needs. Consider things like how much you want to borrow as well as what you can afford to repay and then you will be able to think about which is most likely to offer you the best value for money. This will allow you to be able to identify the best.

Which is the Best Lender?

Once you have decided which loan type will be the best, you will be able to compare the different lenders that are offering this type of loan and you will be able to compare them and choose the one that you feel is best. They are likely to vary in things such as cost and therefore it is well worth doing this as it could make a big difference with regards to the value for money that you get from your loan.