During this pandemic, as millions of households struggle to make ends meet and are pushed beyond their financial limits due to the financial crisis brought on by the pandemic, payday loans offer a reasonable solution and fast. Payday loans are structured around the idea of accessing your paycheck earlier which is quick money provided as a short term loan to be repaid before the end of the month which can help you meet those immediate cash flow needs.
However, it is extremely important to find out if a payday loan is right for you. Indeed, as tempting as it may sound, lenders can exploit your financial difficulty, especially if you are unaware of the process. Hence, payday loans should be understood so that you can better assess what you are getting and what is expected of the process and in return from you.
What is a payday loan?
A payday loan – also known as a cash advance or a check advance – is a type of short-term loan that does not require collateral, but, in principle, is expensive because lenders mark up the loan. interest based on your income. However, a payday loan gets approved relatively easily because it does not require a credit check. This can be especially useful for dealing with sudden expenses or immediate cash flow requirements during the pandemic.
What is the payday loan process?
Payday loans can be best understood as a kind of unsecured personal loan. However, they are still very different from consumer or personal loans in their functionality. For example, you can get a payday loan through physical stores or credit brokers who lend online. Typically, these loans require you to complete a loan application, which can be approved easily on the spot.
While you don’t need collateral or a credit card check to acquire a payday loan, lenders still require proof of your current income levels, an ID card, and moderate banking position. UK law regulates the amount of fees and interest charged to you. You will either receive a check, cash, or money deposited into your account once your payday loan is approved. This money must be repaid in full within one month with interest, although you can borrow for up to three months.
How much money can I borrow and what would it cost?
The average borrowing size for a payday loan is £ 250, but many lenders lend up to £ 1,000. That being said, you need to make sure that lenders adhere to FCA regulations regarding the regulation of payday loans. The FCA has put in place three basic guidelines for this, namely:
- Capping of the initial cost: when lending the initial loan with its interest, it must not exceed the capacity of 0.8% per day.
- Default fee cap: In situations where you can’t repay the loan, lenders can’t charge you more than £ 15.
- Total cost cap: Lenders are required to cap the total cost of the loan at 100%, so you don’t have to pay double the original amount, ensuring customers are protected from debt traps
What options do I have for paying off the payday loan?
With a payday lender, you can always set the specific repayment due date. When that date comes, you have to pay off the loan in full with the interest in one installment. If you don’t, the lender can electronically withdraw the amount from your bank account, or you can request a rollover with additional fees to be paid with the original balance. However, here are your options for paying off the personal loan:
- Next paycheck
- Direct cash
- Via the lender’s website
- Prepaid debit card
So, do I need a payday loan, especially during the pandemic?
Many people, especially essential workers, are facing financial stress due to the ongoing pandemic where they are increasingly borrowing payday loans to meet their needs. Here are some reasons why a payday loan can be beneficial during your financial difficulties in these difficult times:
Quick money to deal with those sudden expenses
If you’re going through the tensions of paying rent, living expenses, and necessities, you’re probably not alone. A payday loan is precisely reasonable to obtain to deal with these sudden expenses or those which have accrued due to an unprecedented period. Not only does this get you the money quickly, but it saves you having to go to the bank or the lender, where they can directly deposit the money into your account.
Available at all times
You can get a personal loan outside of the bank and its traditional hours to deal with emergencies. Alternatively, some lenders also offer loans online so that you can borrow money without worrying. Finally, with payday loans, you can still register and manage the loan, repayments, balance, etc. at any time.
Lenders don’t need to check your credit score or history unless they’re CFA regulated, and you don’t need any collateral to get a payday loan. The application process, unlike other loans, is straightforward and easy. You need your ID and proof of current income for the most part. Since you are asked for very little proof or collateral, lenders can make quick decisions, making it easier to get your application approved.
Get it even on a bad credit score
People with bad credit are often denied a chance to get loans. However, even if you have a bad credit or a history of payday loans, it matters less to the lender in approving your application, as most lenders do not require a credit check. This is because most payday loans compensate for this by asking for high interest loans upon repayment. As a result, people who already have bad credit are also on the list of people who can borrow money instantly to deal with sudden emergencies.
The borrower is in control
Unlike other loans, in payday loans the borrower is in control. You decide how much money you need to borrow, and it’s best that you do just that or you’ll earn higher interest. You are also in charge of setting the date and duration of your reimbursement. This is why many people borrow payday loans compared to others because you can tailor it according to your financial realities and control the whole process.
- A payday loan is a short term loan that acts like an advance paycheck and can help you meet your sudden monetary needs.
- Payday loans are obtained through a lender or credit brokers, and the FCA has essential regulations in place to protect you.
- Payday loans must be repaid before the selected due date, or the lender can electronically withdraw the amount from your bank account.
- Payday loans offer a quick fix to the pandemic: you don’t have to wait long processing times and get quick cash to deal with sudden expenses with quick approval, and all the while you can be in charge.
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