Payday loans are an alternative to conventional loans. These loans are suitable for meeting cash shortfall during the end of the month. Unlike traditional loans, payday loans can be obtained by individuals who have a bad credit history. Moreover, they are much easier to obtain as compared to the conventional loans.
Benefits of payday loans include less strict loan requiremnets and fast approval. However, these loans entail high interest rates. Here we will take a look at how payday loans work, and what are the associated rates and charges.
About Payday Loans
Payday loans are very short term duration loans, typically less than three months. Individuals can apply for payday loans online. In the UK, there is no limit to the rate charged by the lenders. Some of the lenders charge annual percentage rates (APR) as high as 2000%. That said, this figure is meaningless if the loan is availed for 2 months or less.
For instance, a payday loan of £300 that is repayable in 2 months, and has an APR of 2000%, will have the interest rate of £198. However, the longer the repayment period, greater is the interest that you would have to pay on the loan. You can calculate borrowing costs of payday loans by using the online calculator here
How to Apply for Payday Loans?
To apply for a payday loan, an individual will need to provide bank account information and proof of income. Lenders will usually approve the loan within 36 to 48 hours if the individual satisfies their lending requirements. The loan amount is transferred to the bank account of the individuals.
Repayment of Payday Loans
Individuals have two options to repay payday loans. They can either pay back the loan through check, or grant access to the lender to automatically deduct the amount from the bank account once due. The repayment period is specified by the lenders, though some lenders allow you to choose the repayment period.
What’s the Difference between Secured and Unsecured Payday Loans?
Payday loans are not secured in that the payday loan lender does not require you to offer any collateral to obtain the loan. On the other hand secured short term loans, such as logbook loans, are secured against an asset such as your car. The lender will take ownership of the secured asset in the case of default of the loan.
In most cases an unsecured payday loan is a better option than logbook loans. The reason is that the logbook loans are not only expensive but you will also put your valuable asset at risk. These loans are availed by desperate individuals who have very poor credit history.
To sum-up, payday loans are suited for individuals who have to meet cash shortfall until their next pay-check. It’s suggested that you repay the loans at earliest. The reason is that the more you wait to repay the loan, the greater will be the interest charges. Also, it’s best to compare charges and rates of different providers before you take on these loans for meeting essential household expenses.