Taking out a payday loan is rather a significant financial commitment, so it is best to know whether it is going to be the right option for you and your circumstances. Due to the quick and easy nature of payday loans, they are becoming increasingly popular as a way for people to get a lump sum of money, fast.
Before taking the leap into applying for a payday loan, it is essential that you know what other options are available to you, which we will discuss in this guide. There are also things which you need to consider before applying for a loan, just to save you time, effort and most importantly, money.
If you do go for a payday loan over another option, it is important that they are FCA registered. This essentially provides evidence that they are legitimate and they will follow a certain standard of rules.
Why Do I Need The Payday Loan?
Consider this one as your first thought and consider it carefully. Do you really need a payday loan, and what for? You should only be taking out a payday loan to help pay for something which your current finances cannot cover, but can be covered when you get your next pay cheque.
Furthermore, do you need this item? Is it to cover an emergency repair to the boiler? Or is to buy a new pair of designer jeans? If it is the latter, you are better looking elsewhere to fund this sort of thing. Things along the lines of the former are what you should be using your payday loan for, not just to pay for material items you do not yet have the cash for.
Are You Eligible?
Most lenders will only accept an application from those who have good enough credit scores to match their standards. If you are aware that you do not have a great credit history, you may not be accepted for a payday loan. However, there are certain things you can do to improve your credit score before applying.
Before applying for a loan, check up on your credit score to see which lenders you should be taking the time to apply with. This will save you a lot of time and effort.
There are lenders who offer payday loans (and other types of loans) specifically to those who have a bad credit record. Of course, these applicants can expect to receive a higher interest rate, nonetheless, they can still expect to be given a loan.
If you are not sure if the payday loan route is the path you want to take but still need to borrow money, there are other options available.
Many people enjoy having an overdraft even if the never intend to use it, just as a back-up in case they fall into any kind of unforeseen financial difficulty. Overdrafts are particularly great for University students, who often get a free overdraft with a student current account. This means that they do not get charged if they go into their overdraft. Not all bank accounts offer an overdraft as part of their policy, but you can ask your bank if you are eligible.
An overdraft essentially allows you to borrow money from both the bank and yourself. If you have gone into your overdraft, you will pay yourself back. To explain this, basically your balance will show up as a minus (e.g. -£400) and the number is after the minus, is what you owe back to yourself. If your overdraft limit is for example, £1,000 you take away the minus number to get what you still have available to borrow. This means that if you get paid £1,000 but are -£400 into your overdraft, your new balance will be £600 as the £400 of the £1,000 is taken to cover what you owe yourself.
It must be said that overdrafts do come with the temptation to overspend, knowing you will be okay. However, in most cases you will be charged for going into your overdraft so it is best to stay clear of it if you can.
A Credit Card
Another way of borrowing money is by applying for a credit card. When you apply for a credit card through a provider, they will determine a credit limit for you. This will be based on how much they think you can afford to spend based on your spending habits and your repayment history. With a credit card, you are borrowing from the bank rather from a loan provider, like with a loan, or yourself, like with an overdraft.
Say you are given a credit limit of £5,000, you can do with that whatever you pay please. However, you should only spend as much as you can afford to pay back. People fall into debt because they don’t actually weigh up how much they will genuinely be able to afford to pay back each month. You can choose to pay the minimum each time, but this can affect your credit rating. However, doing this occasionally should not damage it to severely.
It may be wise to seek out a card which offers a zero-interest rate. Zero-interest rate cards are usually temporary, but you can find can’t which offer low interest rates. Ultimately, you are using money from the bank to make purchases and then pay back that money when you pay off your bill for the cost of nothing, giving you longer to get hold of the money you need.
A Credit Union
A credit union is a non-profit organisation made up of a collective group of members or those with a mutual interest. Commonly run by charities, freemasons and churches they offer very low interest rate loans at around 26% APR, compared to around 1,000% for payday loans. Through credit unions, you can borrow a similar amount as a payday loan, which is a few hundred pounds over a few weeks or months. Click here to find your nearest credit union.
To be eligible, you typically need to belong to that organisation, such as being a church member or working in the public sector in that local community i.e as a policeman, teacher, nurse or street worker. The benefit is that they look at all credit ratings and they do not charge any late charges or default fees. The downside is that because they are a charity and not a savvy lender, it can take a few weeks to be approved and the money can take time to be transferred.
At All The Lenders, we are passionate about the idea that payday loans are used for genuine emergencies and not for frivolous spending or a long term solution to overcoming debt. We only feature payday loans direct lenders UK so that you can clearly see the exact rates and offers available, without any unnecessary brokers. There are no upfront fees or costs for applying. To determine whether you need it or not, it is important that you consider how you are going to repay your loan before proceeding.