If you have never used a payday loan before you might wonder how they work. You may have no idea who they are for or what they give you. It is wise to find out though. This is because you could find that you will be in the situation where you need to borrow money and not be sure which loan will suit you the best. If you have an understanding of different loan types, then you will be able to work out whether these will be suitable for you or not.
How much can you borrow?
It is worth knowing first, all about how much can be borrowed. Payday loans are normally for smaller amounts of money. This means amounts of a few hundred pounds, potentially up to a thousand pounds. It is likely that a lender will start by lending a smaller amount of money and if you can repay that on time, you will find that they will be more likely to lend you more next time if you need it. Borrowing just a small amount is advantageous as it means that it will be easier to repay.
How long for?
A payday loan will lend you money until you next get paid. This means that the amount of time it will last for will depend on how long there is until you next get paid. You might take the loan just after you get paid and then it will be nearly four weeks before you have to repay it. However, it is much more likely that it will be nearer to your next payday, perhaps a few weeks or even a few days.
How do you repay?
Repaying the loan is simple. The lender will set up a direct debit on the day that you are paid, for the money to just be transferred. This means that there is no chance that you can forget to pay and you should have the money available so that you can easily afford it. You will repay in just one lump sum, so the money you borrow as well as the interest and any fees will all be repaid in one lump sum. This will mean that the debt will disappear really quickly and you will not be taking months to pay it back.
What about credit record?
There are many lenders that will look at your credit record and only lend to you if they feel it is not too risky. This means that they will be looking for those that have repaid loans in the past or that are making regular payments such as rent, mortgage, contracts or utilities and therefore show they are capable of repaying a loan. Most lenders will be reluctant to lend to people who have a poor credit record such as those that are not earning a regular income or who have not managed loan repayments in the past. However, payday lenders do not worry about this. They will still lend to those people that have a poor credit record which means that they could be a useful source of loans to those that cannot borrow elsewhere.
How quickly can I get the money?
Getting money quickly can be a concern for some people. It could be that a bill needs to be paid urgently or that you need to buy food and have no money left. These things can need money to be found almost immediately and fortunately a payday loan will be able to help with this. The loans can often be arranged within a few hours which means that you will be able to get the money very fast. It is worth checking with the lender though as they will vary in how long it takes them to get the money. You also need to be sure that you complete the application accurately and make sure that you send all the relevant documents or else this could slow down the process.
Who are they for?
Often people might feel that loans are for a certain type of person. For example, it is often thought that payday loans are just for those with a poor credit record. Although they were designed for these people, as the loans can be arranged really quickly it can also mean that they will be useful for anyone who needs money really quickly. The fact that they lend small amount also means that they can be good for anyone that just wants a small loan and does not want the worry of borrowing a big amount of money. Some people do not like the thought of borrowing money for a long period of time as well. This means that if they know that it will be repaid within a few weeks or maybe even a few days, they will feel a lot better.