Payday Loans

What are Payday Loans?

Payday loans are basically cash advances, secured against the salary you're expecting.
Payday loans are usually between £100 and £1,000 and can be used for any purpose, provided you can afford to pay them back once your expected income arrives.

Differences between Payday Loans and Other Loans

An Installment Loan is where you receive the loan amount in a single lump sum, and then make regular, pre-agreed payments until the loan amount is fully paid off.  Installment loans are usually repaid over a period of one to five years.  Installment loans tend to take longer to arrange, typically up to a few weeks.

A Revolving Credit facility is where you can borrow less than your approved amount at first and then more later. An example of a revolving credit facility is a credit card. Revolving credit facilities also give you the option to borrow more money by increasing your credit limit as long as there is room available in your credit line.

A Payday Loan is where the full loan amount is repaid in a single lump sum, for example, when you receive your next paycheck. Most payday loan companies advert the fact that you will receive the lump sum within 24 hours.

Advantages of Payday Loans

The main advantages of payday loans are:

• Most providers offer instant decisions, with a promise that the cash will be paid over the same day
• Raising cash through a payday loan to pay bills on time, will often help to maintain your credit rating, rather than leaving the bills go overdue and then paying them using your next paycheck
• Criteria to qualify for a payday loan is often a lot lower than for other types of finance such as a personal loan
• Easier application process, most commonly done online, with the cash being received within 24 hours

Disadvantages of Payday Loans

The main disadvantages of payday loans are:

• Payday loans often attract exceptionally high interest rates
• Payday loans are short term finance, and are therefore not suitable for individuals looking to raise long term finance.  Payday loans are usually repayable within 30 days
• Payday loans are often not available to individuals who do not receive a regular salary or wage, or those without a bank account

Alternatives to Payday Loans

Some of the alternatives to payday loans include:

• If you are looking for more long term finance, a personal loan may be more suitable
• Other short term sources of finance include bank overdrafts, credit cards
• You may be able to borrow money from friends or family, and you may not have to pay any interest or charges for late repayment

Is a Payday Loan right for me?

The information provided above are the views of the author, and should not be construed of advice of any kind.  In deciding whether a payday loan is suitable for you, we recommend you consult an Independent Financial Advisor (IFA) who can better assess your personal circumstances and recommend specific financial products to meet your financial needs.