If you need some cash quickly and without any hassle, you may be considering applying for a payday loan. A payday loan can be an extremely easy way of obtaining money quickly, but there are some things you need to take into consideration before applying. There are plenty of options for payday loan deals available, but how can you bag the best deal possible? It is partly about finding a good deal and partly about your own eligibility.
You should also be aware of the risks that a payday loan can impose. If you are able to pay it back with the interest, you risk scarring your finances and your credit history. If you do not get a good deal, you may also find that you are paying back double what you owed.
What is a payday loan?
A payday loan is a type of short term finance, typically offering borrowing amounts between £100 and £1,000 – this varies depending on the lender. As the name suggests, they are designed to provide you with money until your next payday comes around, which is when you are expected to pay it back in full and with any interest attached.
They are typically ideal for people who are in need of unexpected funding or to meet emergency costs.
It usually works by you agreeing that the lender can take the money from your current account on the day your next salary payment will be transferred to you. However, some lenders do not require it on the exact day and may give you more time (up to six months) to pay back your loan.
Improve your credit score
In order to get the best deal, you will need to good credit score. The lower your score, the higher the interest rate is likely to be.
In general, you should work at improving and/or maintaining a good credit score as it will make obtaining any type of finance easier. From loans to credit cards to mortgages, you should receive the best deal when you have a high credit score.
A credit score reflects your creditworthiness and is actively used by lenders to determine the details of the loan, such as the rate they are going to charge you and how much they are willing to give you overall.
In case you were not aware, the highest credit score you can achieve is 999 and the lowest is 0. Luckily for those who do not have the healthiest looking credit rating, your score is not fixed and can be changed.
To go about improving your credit score, you should:
- Take a look at your spending habits. If you a history of missing payments or overspending when you cannot afford to, this can damage your credit score. If nothing else, attempt to pay off your credit card in full each month.
- Close unused bank accounts. Having too many credit cards can actually damage your credit score. The reason for this is because lenders will see how many accounts you have and see you as a risk to lend to since you already have access to a lot of money in various capacities. Having a number of accounts open can also suggest you are irresponsible with money.
- Avoid too many hard inquires. Whenever you request credit, the lender will look into your credit history which can lead to hard inquiry or “search footprint” being left on your file. Whilst having one or two of these present is harmless, having too many can seriously affect your credit rating. To avoid this, only apply for credit you are sure you qualify for and need, rather than just applying for anything that comes your way. Each time you apply, a search will be conducted.
The cheapest deal is not always the best
In addition, the cheapest deal you can find is most usually not going to be the best. If you see a deal which looks good and is cheap, do some further research into the lender’s reputation. You should also make sure that the lender you go with is FCA authorised.
Shop Around and Compare
When looking for the best deal on a payday loan, make sure you do your research. It is important to not just apply for the first loan you see that looks good.
It is important to take the time to look around at your options. Look on a variety of different comparison sites as they may offer a lower rate on one place than another.
When using a comparison website, you may want to avoid things which say ‘sponsored’ or ‘best deal’ because these might be there to promote a specific product and not necessarily the best option for you. Comparing payday loans effectively can be achieved through looking at the loan duration, representative APR, loan amount and really weighing up the repayment example against another.
For instance, some loans may have the same monthly repayment in instalments and some might be higher to begin with an lower afterwards. So sometimes you need to look at the full repayment example to get a true indication. You may also want to find out if you can repay your loan early as this will allow you to save money by accruing less daily interest.
Allthelenders offers a free and simple way to compare payday loans in the UK. We are authorised by the FCA and are one of the most established price comparison websites for loans in the country, partnered with over 40 lenders. You can use our simple comparison tools to help you get the best rates and loan for your requirements.