Payday lenders offer loan solutions on a short term basis, providing amounts rarely exceeding £1000. Payday lenders in 2011 saw a rise of lending in the UK, which also lead to an increase in payday companies and loan solutions. Not all companies are legitimate or offer competitive rates so you should always shop around when looking for a payday loan; take a good look at the FAQs and eligibility of the company before applying to ensure you don't leave multiple footprints on your credit report, which may result in a further spiral of rejections and a negative impact on your credit.
Payday Loans APR
The annual percentage rate for payday loans is considerably higher than a normal bank loan. This is usually because you pay the loan back within one month and APR reflects annual interest, not monthly. All loan companies are required to state their APR clearly on their website or advertisement, so don't be surprised if the figure shown seems quite high.
Payday lenders vary in APR rates, with some charging a massive 4000% APR according to a Which? consumer group report. Payday lenders in 2011, however, may soon be required to cap their interest rates after other reports have shown customers are paying almost £90 per month for £300 short term loans.
Payday lenders in 2011 started to introduce a more "flexible" payday loan deal. The arrival of the award winning payday lender "Wonga" saw a system where customers could borrow any amount for any number of days, with the actual charges shown before a customer takes the loan. You could borrow £1 for 1 day, which is a far cry from borrowing fixed amounts of £100 for a fixed 30 days. More lenders are offering longer terms and greater loan flexibility, but make sure you keep an eye on the actual repayments; some lenders are also providing "spread the cost" services for loans over a 3 month (or more) period, which, with a high APR that payday loans carry, leaves the customer paying out near twice as much as they borrowed.
Bad Credit, No Check Loans
Some payday lenders also offer loans for people with bad credit with "no credit checks" against their credit file, instead accepting applications on income and affordability. If you're struggling and have a history of late payment or bad credit they it may be an idea to stay away from "bad credit" payday lenders as this can leave you in more debt. Charges for missing payments can range from anything between £5 to £25, which would also see a steep increase of interest should payments be missed.
Some payday lenders in 2011 have received awards for their services, but you should always check each company first before applying for a loan. Payday loans are notorious for rolling customers over into more debt; it's absolutely essential that you're sure you can meet the loan requirements on your next payday and still afford to live after paying back the loan.
- Flickr: Payday Loans