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.