There are lots of different types of loans and they work differently. Some are more common than others and some have been around a long time and others are new. This means that it is not always easy to work out which ones might be the best ones to take out. A payday loan is a type of loan that you may be less likely to know much about and so it is a good idea to investigate it. If you are looking to borrow money, it is wise to know all about the options available to you before you decide which loan to take as you will then know that you are using the best one for you. A payday loan has a few main features that make it stand out from other loans and it is worth knowing what these are so that you can decide whether it will be a good loan for you.
Borrow Small Amounts of Money
With a payday loan you will be lent up to £1,000. The amount that you can borrow will be small if you have never had a payday loan before and if you take out a second, then you may be able to borrow more money, if you repaid the first one on time. This is the way that the payday lenders build up trust and so you may only be able to borrow a few hundred pounds the first time you use them, although this will vary between lenders. Some people like the idea of only borrowing a small amount of money though. It feels much more manageable and less stressful if you only have a small amount of money to repay. It may also be all that you need, if you only need to repay a small bill or need it to buy something fairly cheap. Of course, if you need a lot of money then this will not be the right sort of loan for you.
Pay Back Quickly
With a payday loan you will only have the loan for a few weeks. This is because the idea of this sort of loan is to give you some money to keep you going until you next get paid. So, on the day that you are paid, the repayment will automatically be removed from your bank and you repay everything you owe in one lump sum. You will have to set up a direct debit payment for this, which means that you will not forget to pay it. Paying back quickly means that you will not have the loan for very long. This is a great thing for those people that do not like the idea of being in debt. They will not owe money for very long and they will therefore not feel stressed about being in debt for very long either.
No Credit Check
There is no credit check done when you take out a payday loan. This means that if you have a poor credit record and you cannot get a loan with any other company, you will still be able to get out a payday loan. So, you will be able to borrow money, if you have an emergency and need money. It is worth noting though, that payday loans are expensive. This is because the lenders take on a big risk by lending money to those with a poor credit record, who may struggle to repay it. It is really important to make sure that you are completely aware of how much the loan will cost you and you will therefore be able to decide whether you think that it is worth it.
Risk
There is a larger risk with this sort of loan. This is because it is offered to people who have a poor credit record. It is an expensive way to borrow and so if you have a good credit record you would be better off using a cheaper loan such as a credit card or overdraft. If you do have a poor credit record, then this could be because you have struggled with loan repayments before. This is then risky, because if you have struggled before you may struggle again. Even though the loan repayment goes out on the day you are paid, it does not mean you will be able to repay it. It could be that you have other payments going out on that day or that your pay will be absorbed by an overdraft and then you will not have enough. So, make sure that it is a loan that you should be taking out. As with all loans, look at the alternatives and see whether you have other borrowing options. It is also wise to make sure that you really need to borrow the money. These loans are meant for emergencies and if you can wait a little while then try to do that and use your pay instead of borrowing. If it is a bill you need to pay, you might be able to speak to the company and explain that you will pay them when you get paid, if it is an item you need to buy, you may be able to just hold on for a little longer.
These are the main things to consider when you are thinking about this sort of loan. It is a good idea to make sure you have a full understanding of the terms and conditions though, as they will vary between lenders and you need to be fully aware of how the loan works before you take one out. You need to be completely sure that you are able to repay it as well, so that you can take the loan out in confidence and know that you will not have to pay out any more fees than necessary as late repayments can be very costly.
