Payday loans have been popular in the US for a long time, but they are still pretty new in the UK, and many people don't know what they are. With all the debate about whether they're a good service or just legalised loan sharking, UK residents who are thinking about applying should make sure they know what they're getting into.
Most of us run out of money by the end of the month and have to tighten our belts by going out less or not spending as much on other things that aren't essential. Most of us who have jobs and get paid once a month have to deal with this (annoying!) fact of money life. But sometimes, running out of money can be worse than this, especially if there are important bills or repairs that need to be paid.
People often use their bank accounts' overdraft feature to give them a little breathing room when money is tight. However, in today's world, many people are permanently overdrawn and close to their limits, so this may not be an option.
You could also use a credit card for purchases and cash withdrawals to get by until your next paycheck. There are several problems with this, including the fact that credit cards are an expensive way to borrow money and that it's easy to build up a big balance, which can be bad for your long-term financial health.
If neither of the first two options works for you, you might want to look into a payday loan. In short, these loans are available to almost anyone who has a bank account, a debit card, and a steady job. When you get one, the lender will put the amount you ask for right into your bank account, usually within 24 hours of your application being approved. During the application process, you will have given the loan company your debit card information. On your next pay day, the loan company will use this information to automatically pay off your loan and any fees.
The fees are one of the biggest problems with payday loans.
This kind of credit is known for being very expensive, and APRs of 1000 percent or even higher are common. These APR numbers might be a little misleading, since the APR system is made for loans with longer terms than payday loans, which are paid back in days instead of years. Still, these loans are pretty pricey, and the going rate is usually a fee of 25% of the amount you borrow.
The second big problem is that paying back your loan and fee will probably leave you broke again at the end of the next month. It's easy to get stuck in an expensive cycle of taking out loans every month, which is when those high APR rates will really hurt.
So, what's the point of getting a payday loan? Yes, but only in a real emergency where there's nothing else to do. If you're using these loans to pay for your day-to-day life, you should look at your finances and see where you can save money. You could also restructure your debt with a consolidation loan or something similar to get some extra cash each month.
