When you are taking out a payday loan, it’s natural that you might have some questions that you need answered. Payday Loans are comparatively a new concept, and people are still a little confused about how much they take out and how much they have to pay back.
This article discusses the main things that you should know when taking out a payday loan.
What are payday loans?
For the people who have never taken out a payday loan, let’s just begin with the basics. What is a payday loan? For people looking for short term loans, Payday loans offer them an opportunity to get loans from £50 to £1000 within the time span of 15 gays or a year. This depends on the amount you have taken out and the interest rate that you get.
Most payday loans are easy to acquire and can be wired to your account within the day of application. Payday loans come attached with a higher interest rate so people who are looking to take a payday loan should be vary of how much interest is the lender attaching and is it possible for the borrower to pay it back on time.
Why is the term Payday attached with this loan?
Payday loans are borrowed so you can pay them back whenever you get your next pay for the month, hence the term Payday. The lender makes sure that he lends you the amount that can be expected with interest by the end of the month. The loan is supposed to be for a short term, but in some cases when a person may not be able to pay back, the loan may be extended to give them more time to pay it back.
Payday loan interest rates
As Payday Loans are extremely easy to acquire, the lender is taking a risk when they are giving out the loan, hence Payday loans have high interest rates attached with them. Different lenders have different rates, but usually the interest rates seem to fluctuate between 10%-30% of the borrowed amount.
In some cases, there are additional fees that are attached to these loans. They are mainly government fees and additional penalties and fees are added if you default on the loan. When you take out a Payday loan, one thing you must keep in mind is that you should pay them on time so that you don’t get hit with the extra payout and for no negative effect on your credit score.
What is the 1000% interest?
You may hear people say that Payday Loans tend to make you pay a 1000% interest. In reality, most Payday loans are capped at 24%. What the people mean when they say that it is almost 1000% is that when you take out a loan that is to be paid with a high interest rate in such a short amount of time seems equivalent to something that has 1000% interest attached to it.
Payday loans have a limit (usually 24%) when they are capped and the government does not allow lenders to charge interest more than that.
Payday Loans vs. Long Term Loans
It’s simple, Payday loans are much easier to acquire as compared to long term loans, which is why in cases of emergency Payday loans can come in very handy. However, when you compare the interest rates of the long term loans to Payday loans, there is a significantly large amount that you have to pay in lesser time.
If you have a 24% interest on a long term loans, it will be divided over 12 months, but if you have a Payday loan, the full amount with 24% interest is to be paid altogether. Payday loans are more expensive so it is better to only use them when you absolutely see it necessary or in the case when you know you will be able to pay the principal plus interest on the first repayment date.
Time for acquiring payday loans
This depends from lender to lender. Some lenders are able to wire the money within the hour of the application for the loan, while others may take one business day or two. In most cases, you get the money within the day of applying for the loan. This is why they are very convenient in emergency situations.
Credit Score and Payday Loans
Credit history plays a huge role for lenders all around the world. The good thing about Payday Loans is that lenders usually lend you the money based on your monthly income so it does not have much to do with your credit history. However, there may be some lenders that may tighten the lending criteria after a credit report check.
Payday loans are a good way to get your bad credit score a bump. If you take out a Payday loans and pay it back on time, you will receive a positive score on your credit report.
Payday lenders can be sneaky
In this world of lending and borrowing, there are people who can prey on people that are desperately in need of money and give them an amount and interest rate which is not payable with in the first month. There are reputable lenders that you can find online and can ask people around you to recommend you ones that have helped them out. Do not trust the first payday lender you find.
Payday Lenders and Background Checks
There may be some Payday lenders who try to contact the employer of the borrower to confirm the employment and the income amount. However you can avoid this by providing enough documentation to the lender and ask them if they will or will not be calling your employer. In cases where you want it to be kept private, you can confirm with your lender if they will oblige to the request.
These are some of the things that you should know when you are seeking out payday loans. A borrower must always also know that they will be able to pay the amount back in time; otherwise they may face higher penalties. Find reputable lenders to avoid problems with repayment and take out the amount that you can afford, do not always go on the recommendation of the lender. Compare your payday loans options in the UK at https://paydayloans.quiddicompare.co.uk .