It’s becoming increasingly difficult to make ends meet for many, which can be made worse if faced with an unprecedented expense, like a broker boiler, or an urgent home or car repair.
This is why many seek help in the form of a payday loans uk direct lender, for quick cash when they need it most. However, there are a few factors to think about before you apply to ensure you’re making an informed decision. We’ll take a closer look at these considerations below.
Payday Loans: Things to Consider
Payday loans can be helpful if you’re faced with an unexpected cost that your income will not stretch to cover. But whilst they can help you when you’re in a financial bind, it always helps to know more about this type of finance before you apply, so you can be sure you’re making an informed decision. Below, we’ll take a closer look at some of the most important factors to consider when choosing a payday loan.
Interest Rates and Fees
Payday loans have a short repayment period and typically need to be repaid on the borrower’s next payday. Because of this, the chances of missing payments and defaulting on this type of loan are higher than others, which results in higher interest rates.
As well as this, payday loans are offered to those with low credit, which means lenders push interest rates up to ensure they’re making their money back. When applying for a payday loan, you should always be aware of how much interest you’re going to be charged as this can have a huge impact on the overall cost of the loan and can make it more difficult to manage. You should also be aware of additional charges such as early and late repayment fees that can also add to the overall cost of borrowing.
Unlike other types of finance, payday loans have one of the shortest repayment terms. As the name suggests, payday loans are expected to be paid back in around 30 days, when the borrower next gets paid. Because of this, it’s essential you ensure you have the funds to pay back the loan in this short timeframe. Failure to do this could end up with you defaulting on the loan, falling further into financial difficulty, and getting trapped in a cycle of debt. Make sure you work out the total cost of borrowing before applying for your loan, and ensure you can pay this back in the period set out by your lender.
Research and Compare
When it comes to making informed decisions about payday loans, this is one of the most important aspects. Researching and comparing lenders online allows you to find the best deal for you, in terms of interest rates and fees. Not only this, but it also allows you to find a lender that is trustworthy and offers a high-quality service. Payday loan lenders in the past have gained a bad reputation, as some took part in predatory lending practices – however, a lot has changed since then. It’s still important to ensure you’re applying for a loan with a recognised and regulated lender so you can protect your financial health and benefit from funds when you need them most.
When applying for any type of loan, it’s essential that you think about the impact it will have on your credit score when you apply. Whilst you don’t need a perfect credit score to benefit from a payday loan – lenders base their decisions on affordability rather than credit history – the short repayment period can have an effect on your credit rating. Because a payday loan needs to be paid back quickly, the chances of missing a payment are higher, so your credit score could be at risk.
However, if you know you can afford to pay off your payday loan in full and on time, you may just see your credit score improve. Be aware of how taking out this type of loan may have an impact on your credit history, and other finance applications in the future.
If you’re thinking about applying for a payday loan, whilst they can be helpful in financial emergencies, you should consider the above points to get a better idea of whether this type of finance is suitable for you.