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Payday loans are designed to be used for short periods of time

What Are Payday Loans?

Secured Loans > Our Loans > Homeowner Loans > What are Payday Loans?

Payday loans have caused a great deal of controversy. They are being cited as the reason for consumers getting into considerable amounts of debt. They can be an extremely useful tool in certain situations if they are used correctly. However, they can also lead to escalating debt issues and do not help to educate people on financial matters.

Using a Payday Loan

Unlike secured loans, payday loans are designed to be used for short periods of time. They can be a way of paying for an unexpected bill or another essential, such as property repairs or replacing a broken appliance, until you get paid.

As they are only meant to tide a user over until payday, they have very high interest rates when compared to longer-term loans. The repayment period on payday loans can be varied, enabling you to set it for the exact time you require. This can be anything from one day to five months.

They are generally available for smaller amounts than personal or secured loans. The maximum amount you can borrow is usually around £1,000, though this may be lower for first-time users. However, more valued customers can build up a relationship with the loan provider, enabling them to apply for higher limits.

The Benefits of Using Payday Loans

Payday loans are not all bad news, but they need to be used correctly and for the right reasons. Otherwise, consumers can come to rely on them month after month. They can be a cheaper option than the other alternatives if you only need the money for a short amount of time.

For example, the costs could be lower than bank charges for returned direct debits or if you go over your overdraft. However, if you have access to an authorised overdraft facility or a credit card with a 0% interest rate, these will probably be a cheaper method of borrowing.

Accessing money through a payday loan is quick and easy. This can be a benefit if you have a financial emergency, but it also makes it all too easy for people to get hold of money that they can’t actually afford to pay back. The websites for the companies operate 24 hours a day, and the money can be available within hours rather than the days or weeks it might take getting a traditional bank loan.

Problems with Payday Loans

Payday loans start to cause problems because of the hefty fees that are added to late repayments. The charges on these loans can quickly mount up and get out of control. If you can’t afford to repay the loan after the first month, they will often allow you to roll it over to the next month.

This increases the length of time you have to make the repayment, but it can substantially increase the amount you owe. If you fail to make the repayment on time, they will charge a large late-payment fee. Interest will also continue to be added daily.

Using payday loans on a regular basis doesn’t solve your financial issues, and it can actually make them worse. If you start relying on them to get by on a monthly basis, then you probably need to start looking deeper into your problems. When your debts have become too large for you to afford the monthly repayments, you might want to consider another method, such as debt consolidation loans. Read our article to learn more about how to consolidate your payday loans.

When you sign up for a payday loan, you give the company authorisation to take money directly from your account. This is called a Continuous Payment Authority (CPA) and means they will keep trying to take the repayments even if you have no money in the account.

Even if you can afford to repay the loan, it could have an impact on your credit rating. Some lenders are wary of payday loan users. They can see it as an indication of financial problems and are less likely to lend to you.

Payday loans have been widely used in recent years. However, they are not a solution to serious financial issues. With these cases, it’s best to seek professional help and look at ways of repaying your debts on a longer-term basis.

Warning: Late payment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

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Evolution Money Limited is a licensed credit broker and service provider to Evolution Lending Limited. If your application doesn’t meet the underwriting requirements of Evolution Lending Limited we may pass your information to other lenders and brokers. Evolution Money Limited is a company registered in England & Wales, registration number 06987852 and registered at 8 St John Street, Manchester, M3 4DU. Authorised and regulated by the Financial Conduct Authority, firm reference number 708324.

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