How do Payday Loans Work?
If you are thinking about taking out any sort of loan then it is really important to make sure that you understand exactly how it works. This is because you need to be sure that the loan will suit you and the only way to do this is to know that it will work well for you. Therefore, if you only know a little about the loan, you are taking a risk by taking it out. This means that you should make sure that you know a lot about it. With payday loans you may be less familiar with the loan type anyway. This is because they are fairly new and not issued by traditional lenders. Therefore, it is important to have an understanding of their main features, particularly those that are different to more traditional loans.
No Credit Check
With a payday loan, it will not matter if you have a good or bad credit report. Although a credit check has to be done, the lender will not look at your credit history and use it to judge whether they will lend to you. They will lend to anyone regardless of their credit history. This is something that is very different to traditional loans, where your credit history will be carefully studied and you will be unlikely to get a loan at all if you do not have a good credit score. As payday lenders are taking on quite a risk by not using your credit history to judge you, they will only want to lend you a small amount of money. This means that you are going to only be able to borrow between £100 and £1,000 with this sort of loan. A first time borrower, is also likely to not be able to borrow so much as a lender will want to build up some trust with them first. They will want to make sure that they can trust them before they let them have a lot of money. This means that they will possibly only lend a few hundred pounds to start with and then lend more once that has been successfully repaid on time.
Quick to Arrange
A payday loan can be a lot quicker to arrange than more traditional loans. It is designed to help people out when they need money in an emergency and this means that the lenders realise that being able to get money quickly is important. This is why some lenders are able to send money within a few hours of someone applying and others will lend money outside of normal banking hours. If you need money quickly, you will need to check with the lender to find out how long they are likely to take though as this will vary as some might take a few days and will not be available outside of normal banking hours. This might be okay for you, it depends how urgently you need the money.
Payday loans are also repaid in full, in one repayment. They are paid on the next day that you get paid, which means that you only hold the loan for a few weeks or possibly even just a few days. They are therefore very short term and great for anyone who does not like to be in debt for very long. This can be great, but it does mean that you will need to be very careful to check that you have enough money to make the repayment and also check that you will have enough money to pay for everything else that you need as well.