During this pandemic, when millions of households are struggling to make ends meet and are stretched beyond their financial limits due to the financial crisis the pandemic has come with, payday loans offer a reasonable and quick solution. Payday loans are structured on the idea of accessing your paycheck earlier, i.e. fast cash provided as a short term loan to be repaid by the end of the month that can help you cover those immediate cash needs.
However, it is extremely important to find out if a payday loan is right for you. This is because, as tempting as it may sound, lenders can exploit your financial struggle, especially if you’re not aware of the process. Therefore, payday loans need to be understood so you can better evaluate what you get and what is expected of the process and in return from you.
What is a payday loan?
A payday loan – also known as a cash advance or check advance loan – is a type of short-term loan which do not require collateral yet, in principle, is a high-cost one as the lenders mark up interest based on your income. However, a payday loan gets approval relatively easily as it does not require any credit check. This can be especially helpful when meeting sudden expenses or immediate cash needs during the pandemic.
What is the payday loan process?
Payday loans can be better understood as a kind of unsecured personal loan. However, they are still very different from consumer or personal loans in functionality. For example, you can obtain a payday loan via physical stores or credit brokers which lend loan online. Typically, these loans require you to fill an application for the loan, which can be approved easily there and then.
Although you do not need collateral or a credit card check to acquire a payday loan, the lenders still require proof of your current income levels, an identification card, and a moderate bank standing. The law in the UK regulates the amount of fee and interest you are charged off. You will receive either a check, cash, or money bank deposited in your account once your payday loan gets approved. This money needs to be repaid within a month in full with interest, although you can borrow for as much as three months.
How much money can I borrow, and what would be its cost?
The average borrowing size of a payday loan is £250, but many lenders lend as much as up to £1,000. With that being said, you need to make sure that lenders are following FCA regulations relating to the regulation of payday loans. The FCA has three fundamental guidelines in place for this, which are:
- Initial Cost Cap: when lending the initial loan with its interest, it should not exceed the capacity of 0.8% per day.
- Default Fee Cap: In situations where you are unable to repay the loan, the lenders cannot charge you more than £15.
- Cap on Total Cost: Lenders are obligated to cap the total cost of the loan to 100%, so you don’t have to pay double of the original amount, ensuring that the customers are protected from debt traps
What options do I have in repaying the payday loan?
With a payday loan lender, you can always set the specific repayment due date. When that date arrives, you are expected to pay the loan in full with interest as a single payment. If you fail to do so, the lender can electronically withdraw the amount from your bank account, or you can ask for a rollover with additional costs to be paid with the original balance. However, here are your options for the repayment of the payday loan:
- Next payday check
- Direct cash
- Via the lender’s website
- Prepaid debit card
So, do I need a payday loan, especially during the pandemic?
Many people, especially the essential workers, are facing financial stress due to the ongoing pandemic where they are increasingly borrowing payday loans to meet their ends. Here are a few reasons as to why a payday loan can be beneficial during your financial hardship in these trying times:
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Fast money to meet those sudden expenses
If you are going through the tensions of paying for rent, living expenses, and necessities, you are probably not alone. A payday loan is precisely reasonable to obtain to meet those sudden expenses or those which have been piling up due to unprecedented times. Not only does it provide you with quick cash, but it saves your trip to the bank or lender, where they can directly deposit the money in your account.
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Available at all times
You can obtain a payday loan outside of the bank and its traditional hours to meet emergencies. Alternatively, some lenders also offer online loans so you can borrow the money without worrying. Lastly, with payday loans, you can always check-in and manage the loan, repayments, balance, etc., at all times.
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Easy approval
Lenders do not need to check your credit score or history unless regulated by the CFA, and you do not need any collateral to obtain a payday loan. The application process, unlike other loans, is simple and easy. You need your identification and proof of current income for the most part. As very little is asked for you to provide as evidence or guarantee, lenders can make quick decisions, leading to easy approval of your application.
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Obtain it even on a bad credit score
People with bad credit scores are often denied off a chance to be lent loans. However, even if you have a bad credit score or history with payday loans, it matters less for the lender in your application approval as most lenders do not require any credit checks at all. This is because most payday loans compensate for this by asking for high-interest loans on repayment. As a result, people with previous bad credit scores also make it to the list of people who can borrow instant money to meet sudden emergencies.
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The borrower is in control
Unlike other loans, in payday loans, it is the borrower who is in control. You get to decide the amount of money you need to borrow, and it is better that you do exactly that, or it will result in you amassing higher interests. You are also in charge of setting your repayment date and term. This is why many people borrow payday loans compared to others as you can tailor it according to your financial realities and control the entire process.
Summary
- A payday loan is a short-term loan that acts as an early paycheck and can help you meet your sudden monetary needs.
- Payday loans are obtained via a lender or credit brokers, and the FCA has essential regulations in place to protect you.
- Payday loans need to be repaid before the selected due date, or the lender can electronically withdraw the amount from your bank account.
- Payday loans offer a quick solution in the pandemic: you do not have to wait for lengthy process times and get money swiftly to meet sudden expenses with fast approval, and all that time, you can be in charge.
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