Payday Loans

Payday loans are designed to help you with any short-term cash flow problems until your next payday when you will repay the loan in full. However, the definition of payday loans has widened and can now relate to small loans returned in instalments over several months.

These loans typically have extremely high interest rates. Even though they are regulated and interest and fees are limited, payday loans are nevertheless significantly more expensive than other types of borrowing. If you need to borrow money, there are probably better solutions available.

If your payday loan application is approved, the money is deposited straight into your bank account, and you pay it in full at the end of the month, including interest and charges. However, you can now borrow for longer periods of time – typically three months (though lengthier loans are available) – and repay in instalments.

All of these loans have one thing in common: they are high-cost, short-term, and sometimes for little amounts. A payday loan is pricey and may exacerbate your problem if you are unable to repay it on time. 

Payday loans are mostly used to bridge the gap between short-term expenses. Generally, these loans help you make ends meet when you have a cash crunch. Whether you want to repay your credit card debt, or you want to get help with your monthly expenses, you can use the money for your financial needs. 

A lot of lenders offer these payday loans online or even in their offline stores. One of the most important factors that you need to consider while applying for it is to check if the lender you have chosen to borrow from is authorised by the Financial Conduct Authority (FCA). Dealing with lenders who are not authorised by the FCA may prove to be financially risky for you. 

Step-by-Step Guide to Applying for a Payday Loan 

You can apply for a payday loan easily online in a few easy steps. 

1. Determine the amount that you need to borrow
2. Find a lender that is authorised by the FCA to lend payday loans in the UK
3. Compare quotes from different lenders 
4. Fill in the application form online and submit all the necessary documents
5. Wait for the lender to review your payday loan application

If you do not want to apply for a payday loan, you can apply for short-term loans with LoanTube. Compare multiple quotes from different FCA registered lenders with a single application form. Get real APRs from the lenders to know the actual cost of borrowing and repay the loan in instalments as per your financial horizon.

Required Documents for Payday Loan Applications 

Different lenders may ask for a different set of documents when you apply for a payday loan. However, most lenders will ask you to submit documents to prove your identity, age,  employment, residential status, source of income, bank statements, and other a few other financial statements to review your loan application. 

Eligibility Criteria for Borrowing Payday Loans 

To borrow a payday loan in the UK, you must be 18 years of age or above. Some lenders may need the applicant to be 21 years or above. Check the eligibility criteria of the lender before applying to increase the chance of your loan approval. The lender needs to be assured that you are employed as employment shows that you have a regular stream of income, which will be helpful in repaying the loan. 

You may also require a guarantor, someone, who can attest to your repayment and will do so if you fail to pay. This is usually required for people with low or no credit history.

A payday loan’s average annual percentage rate (APR) can reach 1,500%, which is much higher than many other types of borrowing. Because the APR tells you how much it costs to borrow over a year, and payday loan terms are frequently smaller than a year, getting a payday loan may not cost as much as the APR suggests.

Remember that interest is computed as a percentage of the loan amount that you borrow and is typically levied daily for payday loans. As a result, the higher your loan amount and the longer you have it, the more interest you will pay.

If you are having difficulty keeping up with your loan payments, you are considered to be in debt. If you have previously missed a payment, and you do not believe you will be able to repay the loan within the agreed-upon term, consider contacting your lender. If you are experiencing financial troubles, you should contact your lender immediately and explain your circumstances. 

Borrowing Responsibly with Payday Loans 

Payday lenders may allow you to ‘roll over’ your outstanding loan for another month. However, while this provides you more time to pay, it will result in more fees and charges. Lenders are only permitted to provide this choice twice to a borrower. Hence, if you agree to extend your loan, the lender must share a document warning you about the risks of borrowing more and directing you to a debt relief centre.

If you believe a payday lender has treated you unfairly, you can file a complaint with the lender. If the problem isn’t rectified, you can escalate it and file a complaint with the Financial Ombudsman Service.

Exploring Alternative Borrowing Options 

There are less riskier alternatives to payday loans that are less likely to trap you in debt. Consider exploring elsewhere if you are currently in debt, aren’t sure you can repay a payday loan, or simply want to find another means to get money.  

Mentioned below are a few alternatives to payday loans that are worth considering: 

Personal Loan 

A personal loan allows you to borrow a large sum of money for a specific period of time, returning a fixed amount each month. It can be a less expensive kind of borrowing, with interest rates that are normally substantially lower than those of an overdraft. However, in order to be approved for an unsecured loan, you must typically have a good credit history.

LoanTube has partnered with a lot of FCA authorised lenders in the UK who offer personal loans. Compare real APRs from various lenders and choose the right lender as per your financial needs with a single application form. 

Credit Card 

Credit cards, when used carefully, can be a less expensive option to borrow money than a payday loan. If you are able to get a 0% interest credit card, you will not be charged any additional fees as long as you pay back it in full before the introductory period expires.

Even cards that do not offer a 0% interest period will not charge interest if you pay off your credit card in full each month. Even if you don’t pay off your balance every month and are charged interest, the rates should be lower than a payday loan.

However, only charge what you can afford to repay on your credit card. If you don’t pay off your credit cards on time, interest costs can add up over time, leaving you in debt.

Guarantor Loans 

You can find a cousin or acquaintance to act as a guarantor on a loan, increasing your chances of approval even if you have a low credit score. If you are unable to repay the debt, the guarantor is obligated to do so. Guarantor loans are generally cheaper than unsecured loans as you will be using a co-signor for your loan. 

Avoiding the Debt Cycle with Payday Loans 

If you are experiencing financial issues, The first step is to contact your lender. It may place you on a repayment plan that reduces your monthly payments to an amount you can afford, but this often means that you pay more in interest over time. Payday lenders may offer you the option of deferring or rolling over your payment due to the following month.

Using a rollover offers you an extra month to make your payment, but you may end up paying more interest – but by law, you should never spend more in fees and interest than you borrowed.

Returning to basic budgeting principles is one of the most effective methods to lessen your reliance on credit. Determine your priority and non-priority debts and begin paying them off in order. Stop incurring new loans and begin reducing your current debts so you can stay on track with your finances. 

A payday loan will usually not harm your credit score as long as you repay it in full and on time. When you apply for any loan, your credit history is reviewed. This leaves a mark on your record, but it merely indicates that you applied for credit. 

Credit Checks for Payday Loans 

When you apply for a payday loan, generally, the lender will run a credit check on you, which will take off a few points from your score if it is a hard credit check. There are lenders who may run a soft check to assess your eligibility. A soft credit check doesn’t impact your score and doesn’t leave a footprint on your credit report. You may ask the lender for a soft check if you are not sure your payday loan application will be approved by them. 

Impact of Credit Scores on Loan Approval 

If you have a good credit score, you will get a lower interest rate and the chances of your loan application being approved by the lender also increase. However, with a low credit score or no credit history, your payday loan application may be turned down by the lender. In some cases, the lender may approve the loan application but offer you a high interest rate. 

No Credit Check Payday Loans 

You may find offers of payday loans with no credit checks, however, there are no such loans. As per the Financial Conduct Authority (FCA), every lender is liable to conduct a credit check on the applicant before arriving at any decision. If someone offers you a no credit check payday loan, be aware as they may be fraudsters. 

There are various benefits of using a payday loan, however, these loans come with some risks as well. Knowing both the risks and benefits of a payday loan will help you decide better. 

Advantages of Payday Loans 

Even if you have a poor credit history, you may be approved if the lender believes you can afford the repayments. This loan can be an option if you need an urgent loan (including one for persons with terrible credit), you might get the money in your bank the same day.

Another advantage of a payday loan is that you can roll the loan over up to twice before repaying it, but you will pay additional interest if you do. They are convenient because you may apply online and receive same-day loans, even on weekends.

Risks and Potential Pitfalls of Payday Loans 

One of the risks of borrowing a payday loan is becoming locked in a debt cycle, such as borrowing money because you are short on finances, and then running out of cash again because you are paying back a loan plus a lot of interest. Customers who find themselves swimming against a financial current and fighting to pay off the rapidly expanding debt quickly become burdened by the loans.