Payday loans are a type of loan whereby you borrow with the intention of paying back the loan in the short term; the term ‘payday’ infers that you will pay back the loan when you receive your salary.
Payday loans are in a way a modern cash advance; in the past employers used to be able give their employees some of their salary before the end of the month if the employee needed the money for an emergency, today as businesses get bigger, it becomes more complicated and many employers in the UK no longer allow advance payments. Payday loans go some way to fill this void, but there are good and bad sides to this concept:
The Good
Ease – a payday loan is much easier to acquire compared to a
bad credit loan for example, most lenders do not even require a credit check, therefore even if you have bad credit you can still get a loan.
Payday loans are also quick; it is possible to complete and receive the money on the same day that you apply for the loan, which makes them very convenient for emergencies.
The bad
Small amounts – the loans are usually limited to small amounts, usually no more than £1000. For most people, this not a problem but if your emergency is bigger than £1000, a payday loan is unhelpful.
No effect on your credit rating – in this day and age where credit ratings matter for most things, it would be better that every time you borrow money, it improves your credit rating, especially if you have a bad credit rating.
The ugly
Interest charges – although payday loans can help you out in an emergency, they have also been criticised as being opportunistic for the astronomical interest charges and fines incurred in case you fail to pay them back in time.
Repayment time – often with payday loans, you are required to pay back the full amount in one instalment. For people who have a tight budget, this might mean having to take out another loan, just to pay back the old one.
