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Payday Loans - What Are They And Is There An Alternative?

Payday loans allow borrowers to receive small amounts of money when they need it the most. With flexible repayment terms and quick access to cash, it’s no wonder that thousands of UK borrowers choose to apply for a payday loan every year.

Although payday loans are not appropriate solutions to long term financial issues, they can be incredibly useful for borrowers who need a little extra cash to tide them over when faced with unanticipated essential spending.

What is a payday loan?

Payday loans, for the most part, are exactly as their name suggests. As short-term loans that typically range between several hundred to a few thousand pounds, it used to be that payday loans were settled by borrowers in full when they next got paid. Although payday loans can be used for a huge variety of purposes, many borrowers find them particularly useful in times of emergency or when an unexpected bill needs to be paid.

In a nutshell, payday loans can be a short-term solution to one-off situations. Examples might include needing to repair a broken-down vehicle or fixing your boiler in those cold winter months.

How to get a payday loan?

Applying for a fast payday loan is straightforward. You can apply either to a payday loans direct lender or via a credit broker. In both cases, you can complete your application online using a desktop computer, laptop, tablet or smartphone. To keep things secure, simply ensure that the device you are using is running the latest software from its manufacturer and that any website you are using to apply displays a padlock symbol in the address bar.

Most lenders and brokers have tailored their online application form to provide potential borrowers with a decision in just moments. If you are approved, money can often reach your account within minutes, dependent on the amount borrowed and the processes and systems used by your own bank.

How do you get approved for a payday loan?

When deciding whether a borrower is eligible for a loan, lenders look at all kinds of criteria ranging from the individual’s credit score through to their income and homeownership status. In the case of payday loans, whilst lenders will still conduct a check of your credit history, they are much more likely to be interested in how much you are earning and how much you regularly spend.

Payday loans are designed to be an alternative to traditional lending. What matters most is whether a borrower can actually afford to repay based on their current circumstances. This means that a much broader selection of people may be eligible for this kind of borrowing as each payday lender will offer loans catering for different situations – from those applying whilst on benefits through to those with patchier credit histories.

How does it work?

In the past payday loans were so called because people would borrow limited amounts of money to keep them going until their next payday, at which point they would repay the entire sum plus interest. Nowadays, so-called payday loans are often in fact short-term loans with repayment periods ranging over several months. Some lenders may allow for repayments to be made more quickly, however many borrowers find a longer repayment term to be more affordable.

Can you get a payday loan with very bad credit?

Whilst having a bad credit score can make it more difficult to get approved for a loan, payday lenders are often willing to consider much more than just your credit history when making a decision. Compared to more traditional lenders, payday lenders have often designed their loans with bad credit applicants in mind. This means that when determining if you are eligible for a loan, they may take into account your monthly income and expenditures to build up a picture of what is affordable for you in your current circumstances.

Whilst all legitimate lenders should carry out a credit check on prospective borrowers, payday lenders understand that many applicants might not have the best possible credit history. Provided that you have a regular income and that the sum you have applied for is likely to be affordable, there is still a good chance that you can be approved for a payday loan even despite having a poor credit history.

Potential borrowers should beware of any company that appears to offer payday loans with no credit check. The Financial Conduct Authority (FCA) requires all authorised and regulated loan providers to run a full credit search on applicants, and any company that claims not to do so may be operating unlawfully.

Are payday loans bad?

Payday loans have undeniably earned a bad reputation in the past and not without good reason. As the credit crunch took hold in the late 2000s, payday loans became synonymous with high interest rates and exploitative contract terms. With a great deal of negative press focussed on how payday lenders mistreated their customers, it’s easy to forget the positive features of this popular, short-term method of borrowing money.

For one thing, payday loans made the process of borrowing money much simpler than it had traditionally been. Rather than appealing to the manager at the local branch of your bank, you could simply fill in an online application form and get a decision within an instant. What’s more, payday loans opened up the lending market to people with poor credit histories who previously may have felt unable to apply for any loans at all. Whilst it’s clear that in the past certain payday lenders adopted less than commendable business practices, they did also enable thousands of borrowers to access money in a fast and convenient way.

Happily, the payday lending practices of the past are no more. Today’s direct lenders are trustworthy and transparent, and they have to be, as they are carefully regulated by the Financial Conduct Authority (FCA). All lenders are subject to strict commercial and ethical guidelines that are in place to protect borrowers. Lenders are still providing quick loans that have been specifically designed for people with bad credit, but you can now take comfort in the fact that there are processes is place to ensure that borrowers get a fair deal.

Can you go to prison for not paying back a payday loan?

If you’re struggling with a payday loan debt, many people worry about the consequences of not paying back what you owe. There is a common misconception that you could be sent to prison if you do not pay back your payday loan. Thankfully this is not the case at all, however your credit score is likely to be damaged if you are unable to make the agreed repayments of your loan.

In the first instance, your payday lender will contact you after missing a repayment in order to settle the debt. They may contact you on several occasions through a variety of means including calls, texts and letters. If you know that you will struggle to repay an agreed sum, it’s best to contact your lender directly. Doing so will not only help you to develop a suitable repayment strategy but will also save you the stress of receiving regular contact from the lender asking for payment.

Any default on repayments of a payday loan may result in the lender charging a daily rate of additional interest for each day that the balance remains outstanding. The rate applied will depend on the lender but the Financial Conduct Authority (FCA) restricts this to no more than 0.8% per day. You may also be charged a one-off default fee, which should not total more than £15.

I need advice on my debts. Who can I speak to?

If you have a low credit rating and are struggling financially, it is important to consider how taking out further loans may impact you. If you are concerned about coping with increasing levels of debt and financial commitments the organisations listed below can provide you with free and impartial advice.




Payday Loans Alternative - Applying for a loan with Little Loans

At Little Loans we specialise in finding loans that suit your needs, whatever they may be. If you have considered applying for a short-term loan, we can help you to find the lender that is most suitable for your circumstances. We have developed relationships with a panel of well-regarded lenders who offer flexible loans of between £100 to £10,000 with repayment terms ranging between 3 to 60 months.

Our website’s quick eligibility checker will give you an instant indication of whether you are eligible for a bad credit, short term loan without affecting your credit score. Once you have completed our simple application form, we will introduce you to the lender who is most likely to approve a loan given your circumstances.

As a reputable credit broker authorised and regulated by the Financial Conduct Authority (FCA), you can be sure that we will always be transparent about the loan for which you are applying. We are not a lender and will never charge you anything for our services.

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Representative Example: Amount of credit: £1200 for 18 months at £90.46 per month. Total amount repayable of £1628.28. Interest: £428.28. Interest rate: 49.9% pa (variable). 49.9% APR Representative. We’re a fully regulated and authorised credit broker and not a lender