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Payday loans are an increasingly popular method of accessing short-term financial help. But, if you’re considering taking out a payday loan, it’s important to familiarise yourself with all of the relevant facts and figures, and ensure that you truly understand the options available to you.

 

What are payday loans?

Payday loans are a short-term method of borrowing small amounts of money. Normally offering loans of between £100 and £1000, they are designed to be taken out towards the end of the month to help people financially until their next payday.

These loans are generally used for unanticipated emergencies that cause financial difficulties, such as boiler replacements or car repairs.

When it comes to repaying your payday loan, the repayment plan will vary depending on the provider. Whilst some lenders will expect payment as soon as payday arrives, others will allow you to choose your own repayment period, anywhere up to a couple of months from when you initially took out the loan.

In some cases lenders will allow you to roll your loan over if you are unable to pay on time. But it’s important to be aware that, in most cases, you will incur additional charges and interest will continue to be added. Although payday loans are relatively easy to access, they usually come with very high interest rates and penalties for late repayment.

 

How do online payday loan applications work?

An online payday loan application is normally straightforward and the application process can be completed in a matter of minutes.

When you apply online, you won’t be asked to supply any paperwork or speak to anyone on the phone, but you’ll usually be asked to supply your address, bank details, and employment details. Although your employer won’t be contacted, lenders often run an online credit check before approving the loan to ensure that you will be able to meet your agreed repayments.

Some online lenders will also require more comprehensive information about the customer’s financial circumstances and expenses to understand whether a short-term loan will be beneficial, or have a negative effect on the individual’s money situation. At MoneyPod all we need to know is that you are:

  • Over 18
  • Reliably employed
  • A Resident in the UK
  • Have a UK bank account that wages are paid into
  • Have an email address
  • Employed and earning over £500 per month

The main benefit of applying for a payday loan online is that you will usually receive an instant decision and, depending on the loan provider and your bank, you could receive the money in as little as 15 minutes.

When making your application, you’ll need to indicate how much you want to borrow and how long you want to borrow it for. The lender will then advise how much the loan will cost in total.

This repayment agreement will differ depending on the payday loan provider, however, there are usually two options:

  • Payday repayment, where the full loan amount is taken from the individual’s bank account on the day they are paid.
  • Repayment over a longer period. MoneyPod offer repayment periods of up to 18 months.

When it comes to taking out a payday loan, you can apply through a direct lender or a broker.  A broker finds the best deal for the customer’s needs, arranging the loan, and then receiving and collecting the money when required.

 

 

Can a payday loan application be made with bad credit?

Many direct lenders offer payday loans to individuals with a poor credit rating. As long as you can prove that you are currently in employment with regular pay, then you’ll probably be able to find a payday lender that is willing to consider your application, even if you’ve got a bad credit history.

However, it’s important to note that you won’t be able to take out a short-term loan if you’re on a debt management plan, or have been bankrupt or been subject to a County Court judgement in the last 12 months.

 

What should I consider before taking out a payday loan?

Before applying for a payday loan, the most important things to consider are:

  • Is it going to help your financial situation?
  • Will you be able to make the repayment?

 

It’s important to question how next month’s financial situation will be any different from the current one where there is the need for extra income. Will your next payslip cover the repayment of the payday loan without causing further financial issues?

If the answer is no, then no matter how desperate your situation is, a short-term loan probably isn’t the answer as it will most likely cause a chain reaction of problems, and could cause your financial difficulties to spiral out of control.

 

Payday loans in the UK

In 2014, it was decided that formal rules were needed to tackle poor conduct and prevent the public from being taken advantage of when taking out short-term loans. The Financial Conduct Authority (FCA) was appointed to monitor and regulate the payday loans industry in the UK.

As well as introducing new rules to maintain fairness in terms of rollovers, advertising, and affordability, the FCA also took on a supervisory role in a bid to prevent loan lenders from breaching these new regulations.

In order to prevent unfair lending practices, the UK parliament gave the FCA a duty to cap the costs associated with short-term loans. This ruling came into practice in early 2015, and the cost of payday loans in the UK is now regulated to ensure that borrowers never have to pay back more than double the amount they initially borrowed, with a total cost cap of 100%. A cap on default fees was also introduced, meaning lenders are now only permitted to charge up to £15.

Under the FCA’s regulations, payday lenders in the UK are also required to determine that an individual can afford the loan before it is granted. It is hoped that this will prevent lenders from taking advantage of borrowers who will actually be financially worse off after taking a short-term loan. In addition to this, lenders are obligated to raise awareness of the risks and costs involved in short-term borrowing, and to ensure their customers and potential customers know where they can access financial help if they need it.

 

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