There are many different loan products on the market to choose from depending on your financial situation and the reason why you’ve decided to borrow money. Payday loans (which are generally issued by smaller lenders not the big banks or other financial giants), are an increasingly popular option. In the UK this type of loan is regulated under the Consumer Credit Act 1974, which requires lenders to have a license from the UK Office of Fair Trading (OFT).
But why take out a payday loan? Here are 7 reasons …
They Buffer Your Paycheque
Payday loans were invented to help borrowers meet their outgoings with a small amount of money, until their next paycheque is issued. This is why they were called payday loans in the first place. In action this means the duration of the loan is typically around two weeks or until the borrowers stated payday. If you are faced with an unforeseen bill or expense, or accidentally went over your monthly budget, a payday loan may just be the solution you need to tide yourself over until your wages come in. It’s almost like an advance on your wages, but from a lender instead of the boss.
Payday lenders only lend small realistic amounts that suit your monthly income, with the average falling between £265 and £270, and the maximum rarely going over £500. As long as you fill out an application properly and are honest about your predicament, you are unlikely to struggle making the repayment because the sums are so small. Only once you have paid off your existing payday loan can you apply for another, and there are no restrictions on the amount of times this can be done. It therefore may be more practical to take out a payday loan every so often, instead of going for a larger traditional loan that you might be unable to pay back.
As mentioned payday loans are only issued for around 2 weeks or until the date of your next paycheque. In most instances the money is deposited directly in to your designated bank account and then the repayment is automatically taken on the agreed upon date, from the same account. Larger loans can be much more stressful because they are outstanding for months and you are required to repay in instalments. What happens if three months in you can no longer meet the obligation? If all you need to do is buffer a few expenses for the month, a payday loan is a hassle free option.
With large loans that are repaid in instalments it can be difficult to understand how much you are actually paying on top of the principal (amount borrowed). Payday loans must be repaid in one lump sum, and the cost of this is clearly communicated to you at every stage. As long as you make the repayment on time there’s no need to worry about interest or fees. In the UK the borrower typically pays no more than £25 per £100 borrowed.
Bad Credit? No Problem
Even if you have a bad credit history you may still qualify for a payday loan if you use a company like Emu.co.uk. This is because your ability to make the repayment is based on your current income status. Because lenders do not issue large sums of money, the risk to the lender is much lower than the risk to a bank when you take out a personal loan of a few thousand. So if your credit rating is not the best and you have struggled with debt in the past, a payday loan may actually be one of the few options available to you.
The majority of payday lenders allow you to easily apply online with a simple web form. There’s no need to fill out reams of paperwork, wait in line for a meeting with a bank employee, fax documents, or wait days for approval. In most cases you will know if you have been approved in minutes and could see the cash in your account the very next day!
Improves Your Credit Rating
A lot of people applying for payday loans will have a bad credit rating. The good news is that successfully taking out and repaying this type of loan is an easy way to improve that rating. The loan is only outstanding for a few weeks and the sums are never too high for you to manage, and once everything is completed you will have proven to other lenders that you can meet your obligations. Do this a few times and you will begin to see your score go up. Over time you will also begin to get access to other forms of credit that you may have been rejected for in the beginning.