Taking any type of loan is a pretty big step. While the initial injection of funds will make your life easy, you will have to pay back the loan with interest. Obviously, if you are borrowing money from friends or a relative, they will not charge any interest. However, asking for money from friends and family doesn’t look good. Not only does it reveal to them that you are suffering from financial troubles, but it can also lead to fallouts in case you do not make the payments on time. Moreover, you will probably have to pay back the whole amount in one go if you borrow from a family or friend.
This is difficult for most people. That is why the most popular options for borrowing money are banks and other lending institutions. However, taking a loan from a bank is not easy at all. Ever since the market crash of 2008, many banks have set up very stringent rules. In order to secure a loan, you must meet the bank’s eligibility criteria. Most banks require you to have a steady job with a decent amount of income. Moreover, you will also have to furnish a detailed list of your assets. Banks want to be sure that their money will be returned to them on time. Your credit history and your credit score will both be scrutinized.
For the average person who just needs a few hundred pounds to make it to the end of the month, taking a loan from a bank is out of the question. The processing time for an average bank loan is usually two weeks. By this time, the average worker will receive their next salary.
What Is a Payday Loan?
Most people with an average find it difficult to make it to the end of the month on their salary. The inflation in UK has become difficult for the average worker. While prices have risen, their wages have remained the same. As a result, the end of the month is a particularly difficult time. Obviously, you can’t ask for money from your friends or family on a regular basis.
Instead, a better option is to apply for a payday loan. A payday advance is a significantly better choice for people who just want a few hundred pounds to bridge the gap between the end of the month and their next payday. These loans are not given out by banks and other lending institutions. Instead, they are given out by separately registered payday companies.
In the UK, there are many different companies that offer payday advance. Take a stroll through your neighbourhood market and you are likely to find a payday lender. Most lenders usually set up their offices in shops. Some also give payday loans over the internet, making the whole lending process extremely easy. However, before you apply for a payday advance, you should know the basic features. Here’s a brief list:
They Are Given in Relatively Small Denominations
Whereas banks are willing to offer loans as high as hundreds of thousands of pounds (depending upon your income potential), most payday companies do not offer loans exceeding a thousand pounds. You can easily apply for a loan of around a hundred pounds or so too. Most people don’t need a lot of money to make it through until the end of the month. Two to three hundred pounds are more than enough to get through a week or so. That is why payday companies structure their products accordingly.
Quick Application Processing
The biggest reason why so many people apply for payday advances is that the processing times are very low. Whereas banks take more than two weeks to process a loan application, payday companies process them in a single business day. For people who need a quick injection of cash, this is a much better option.
The eligibility criteria set by payday companies is significantly more lenient when compared with the eligibility criteria set by banks. You don’t need to have a very high credit score, nor do you need to have a flawless credit history. Your income isn’t an issue either. Since the loan amount itself is so small, payday companies only need assurance that you will pay back the loan on time.
Bank loans must be paid back in instalments. Each loan instalment contains a certain amount of the principal and a small part of the interest charged on top. Depending upon the repayment structure, the total number of instalments may vary. However, paying back a payday advance is very different. When you apply for a payday advance, you will also need to furnish a post-dated cheque. The cheque will be dated for your next payday. The company will deposit the cheque on that particular day. Hence, the amount will be automatically deducted from your bank account on your next payday.
However, not all companies follow this policy. Some companies give the loan without demanding any post-dated cheque. These companies hire recovery agents in case you do not make the repayment on time. You don’t want people coming to your house or office and asking for money. Moreover, delaying the payment will also have a negative impact on your credit score.
Taking a payday advance can make your life very easy. If you have to spend more than you earn, you will be left penniless before your next payday. A payday advance can help you get through those days. Nowadays, you can also send in an application online. Just email all relevant documents to the company. Once the application is approved, the amount will be credited to your bank account in one business day.
An important thing that you should know about payday advances is the fact that the interest rate is much higher. Since the company gives you more benefits, they also charge a much higher interest rate. You shouldn’t expect the company to charge interest based on the current market rates.