If you are trying to decide between short-term loans, you may wonder whether payday loans are the best choice. They certainly tend to be one of the more well-known short-term loans. It is worth making sure that you understand how they work so that you can decide whether they will suit you.
How you get the money
With a payday loan you will apply for the loan online or by telephone in most cases. The application process is very simple and you will not have to provide that much information. This means that it can be very quick and easy compared with other loans. You do not need to have any collateral or a credit check which means that a lot of people are able to get this type of loan if they want one. Once you complete the simple application process you will be able to find out very quickly if you have been approved for the loan and how much you will be offered. Payday lenders will normally lend up to £1,000 and they may offer less to first time borrowers. This is because they will want to check whether you can repay a smaller amount before they allow you to have a larger one.
Once you and they agree on a loan, they will transfer the money into your checking account. The whole process can be completed within a few hours for some lenders. This means that you can get the money really quickly. If you need the money in an emergency then this can be ideal. It is wise though, to check with lenders to find out how long they might take as this time will vary. You will also need to make sure that you will be able to borrow the amount that you need.
How you repay
Repayment on a payday loan is really straightforward. You just repay it all in a lump sum when you are next paid. This means that you only have the loan for a few weeks. This can be particularly good for anyone that does not like being in debt as they will clear the debt really quickly. In fact, most people would probably like to clear their debts quickly. As the repayment date falls on your payday it means that you will have the money available to repay the loan, as long as you borrow a reasonable amount of money. A direct debit is set up as well, which means that you do not have to think about the repayment, it will just happen automatically. You will need to make sure that there is enough money in the account to cover the payment though. Make sure that you are aware of how much money will be leaving the account and how much you will be paid. Check whether there will be any other payments coming out on that day and whether you will have enough money to pay. Also be sure that you will definitely be paid on that day. If there is any chance that you pay might be later, then change the payment day to a few days later so that you can be confident that there will be enough money available to pay the bill.
How much it costs
A payday loan will often have both a fee and interest charge. It can be hard to work out the exact cost which is why many lenders will have a calculator on their website where you will be able to work it out. The cost will vary between lenders and you should be able to calculate the cost on different lenders sites so you can compare them. The more money you borrow and the longer you borrow it for; the more expensive the loan will be. Therefore, if you can delay borrowing as long as possible and borrow the very minimum that you need, you will be able to keep the costs down. If you do not repay on time you will also face extra fees, therefore another way to keep the costs down is to make sure that you do repay it on time. You can do this by making sure that you know when the repayment needs to be made and how much it is and ensuring you have enough money available to pay. This might mean that you will need to find a way to earn a bit extra or that you will need to reduce spending elsewhere to afford it. It can be really wise to actually write out the figures and work out whether you will be able to afford it or not. You should be able to tell whether you will easily be able to afford it, whether you will need to take care or whether you will need to take proactive action to make sure you can afford it.