Guide to payday advance loans: the real cost of getting payday loans

A payday loan, also known as a payday advance loan, is a small, unsecured, short-term loan that is usually less than £500. The loan is given to help people get through short financial dry spells until the next pay day, at which point the loans is supposed to be paid in full. If you are considering taking a payday loan, it is absolutely important that you understand the inherent risks involved and the real cost of payday loans.

Payday loan risks and costs

Payday advance loans are based on the borrower’s employment records and previous payroll. Though useful for pulling people out of sticky cash fixes in the short term, payday loans are often quite expensive and have significant, inherent risks.

Interest rates for payday loans are very high. It is not uncommon to find annual percentage rates (APR) for payday loans reaching as high as 4,000%. Moreover, stiff penalties for defaulting on payments are usually attached to the loans. You can quickly plunge into heavy debts by missing your loan repayments or even put your house at risk in the worst loan defaulting cases.

The importance of fully understanding the real cost of payday loans beforehand cannot be underscored enough. Contact your lender and have a frank discussion about the loan details before you take out the loan. Also, consult a financial adviser or knowledgeable confidant where applicable just to make sure the loan is right for you.

Taking a payday loan

If you are comfortable with payday loan terms, go ahead and apply for them. Visit a lender’s website and fill in the payday loans application form. Provide accurate details in the application form and Fax or mail the required personal documents. The lender will do a credit check prior to approving your loan application.

Once your application is approved, the loan will be paid straight into your bank account. Remember to read the fine print of the loan terms before putting pen to paper so you are clear on the real cost of the payday loans you take. This will help you plan your repayments better and steer you clear of possible problems with the loans.

If, on the other hand, you cannot afford the loan or are not comfortable with the loan terms, it may be a good idea to consider other payday loans alternatives.

Payday loan alternatives

There are many alternatives to payday loans. One of the best alternatives, particularly if you have bad credit, is credit unions. Credit unions are small, non-profit organisations formed by a community of people who share things in common. The unions offer affordable loans and current and savings accounts to benefit their members.

The UK has more than 500 credit unions, although most are under-publicised. Look up credit unions open for membership in your locality and apply to join one or more of them. Once you become a registered member of a union, you can take advantage of affordable loans and other credit benefits offered to members.

Also, check out standard crisis loans and budgeting loans, which are also viable, affordable loan alternatives for payday loans. All these loans can help you make huge savings on the real cost of getting payday loans.

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