Not everybody has an impeccable credit history. Any issues that you've had in the past could well have a huge impact on the finances that you can secure in the future. This means that many people face the very real possibility of being unable to secure credit at a time when they need it most.
One of the emerging alternatives to banks and credit cards has been the payday loan. However, it is a form of borrowing that isn't without controversy. Over the past year there have been numerous features in the media warning of the dangers of short term borrowing and calling for greater regulations. Understandably, this has created a certain amount of apprehension amongst those who might have considered applying. So what is the truth and is a payday loan right for you?
There is no point in glossing over what makes payday loans so different to other forms of borrowing. It is these differences that help to make them such a popular alternative and also add some risk for irresponsible borrowers.
The first issue revolves around the rates of interest being charged. It's certainly natural to be wary when you see a lender offering loans at 2000% APR. However, it is also a little bit deceptive, particularly if you are comparing it with the rates you're likely to encounter through other types of borrowing.
Payday loans are a quick solution. They are generally limited to around 30 days and £500 for first time borrowers. However, this is extremely unlikely to ever happen. So if you were to apply for the full £500, you should expect to repay in the region of £625.
If you are considering any form of short term borrowing then there's a good chance that you want to secure the money as quickly as possible. Credit issues aside, this is certainly one of the most popular reasons for why people turn to payday loan companies. So if you know you have a direct debit due in the morning and don't have the money in your account to cover the expenditure, this is where short term lending really comes into its own.
With most lenders offering 1 hour transfers or, at the very least, same day, you won't have to wait around for a decision or indeed for the money to become available to you. This can be hugely beneficial, particularly if you're weighing up the potential costs of missing payments, bank charges and loan interest. Similarly, if you are faced with an emergency in your personal life and need cash in a hurry, again, payday loans may provide the solution.
As long as you are careful and take the time to understand what is required of you as a borrower, it is an extremely safe and convenient way to secure extra funds. There are costs associated and you have to be wary of unlicensed or unethical lenders, which can be easily found out through a little research on the Internet.
First and foremost, you need to make sure that you have the money to cover repayments when your payday arrives. It's all too easy to find yourself in a situation whereby you're caught short and either have insufficient funds to make the payment or immediately need to take out another loan to get you through the following month. So plan your spending and never borrow more than you can afford.
