Payday loans have got bad publicity for charging outrageously high-interest rates for years. It came under heavy criticism when unethical practices by Wonga came to light. Being accused of trapping credulous borrowers into an endless cycle of debt to extort money, the company had to close its doors and ever since, the FCA put a cap on interest rates, which is 0.8% per day.
Payday loans are small loans aimed at bad credit borrowers who fall short of savings when unforeseen expenses crop up. The motive behind these loans is to fill the gap. The repayment period of these loans is up to 14 days. Once you clear all your dues, you are free from debt.
Things are not as easy as they seem. If you stay caught up on the payment, you will end up rolling over the loan, and just then, the cycle of debt begins to trap you. Financial experts often advise against these loans because they are offered without a credit check. Chances are lenders end up lending you money based on your affordability.
Does that mean payday loans should not be taken out?
Having said that, payday loans are expensive, and it does not allow an interpretation that you should avoid them. You just need to be a bit cautious while applying for these loans. Although a lender will determine your affordability based on your current income, you should also gauge your affordability.
As you are to pay interest on top of what you borrow on the next payday, it is vital to scrutinise if you can meet all of your monthly expenses despite a debt as an additional expense.
Use online calculators to get an idea of the estimated cost, which will be lower than the actual cost for sure. When you have some idea of your affordability, you can decide better if applying for a payday loan with bad credit from a direct lender in the UK makes sense.
How payday loans are different from other loans?
Payday loans work best only when you need money to fund emergencies. Other small loans are also aimed at helping you fund unforeseen expenses when your savings fall short of cash, but payday loans are quite different.
- The Application process is way convenient
The application process for payday loans is very convenient. These loans are aimed at funding emergencies, so the application process is extremely quick. You just have to fill in the application form online, and the lender will quickly assess your affordability based on your income statement.
A lender does not run a credit check, so it saves a lot of time. However, convenience comes with drawbacks. As a lender does not run a credit check, they will charge higher interest rates.
If you fail to pay off the debt, you will end up falling into the debt trap.
- Available for bad credit people
The best thing about payday loans is that they are available with bad credit ratings. Though you can apply for these loans with good credit ratings, they are generally popular among bad credit borrowers.
This is why these loans are generally provided with no credit check facility. When you have a bad credit rating, most of the lenders may turn you down. This is because it increases the risk on the part of a lender.
Payday loans come in handy if you are in urgent need of money and no lender can sign off on your application because of your poor credit report. However, it is vital to ensure that you will not have any problems paying off the debt.
- Easy to manage
These loans are extremely easier to manage. Unlike other loans, you do not have to pay down the debt over a number of months. It means that you are stuck with debt for a long period of time.
If your financial situation changes during this span, you may find it harder to make payments on time. As a result, you will end up making defaults, which leads to late payment fees and accrued interest.
However, on the contrary, payday loans are paid off in a lump sum on the next payday. After a period of 14 days, you just clear all of your dues in one go. Once you have made the payment, you are absolutely free from debt.
With payday loans, you do not have to stick to the debt payments over a period of time.
How to get the best payday loan deals
Getting the best payday loan deals is not that easy. You will likely get these loans at a bit higher interest rate because your credit rating is not bad. However, you can still get these loans at the most affordable interest rates with the following steps:
- You should do proper research. Each payday lender offers different interest rates. Make sure that you choose the one that lends money at the most affordable interest rates. CashFacts in the UK offers these loans at affordable interest rates.
- You should use the online loan calculator to see the estimated cost and then see if you can pay it along with your other expenses.
The bottom line
Payday loans are different from other loans as they are extremely convenient. A lender will be able to make a lending decision based on your income sources without running a credit check. The best part about these loans is that they are easy to manage. You can get rid of them by paying the full payment once and for all.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
