When compared to the US, the use of payday loans in the UK is in its infancy. It has not been that long that these loans became available in this country and as a result, not that many people know that much about this type of loans, loans that can be exquisitely useful in certain situation. It is due to this rather poor knowledge of payday loans in the United Kingdom that we have decided to start this blogsite and for our first article, we decided to provide you with some basic facts about these loans, just so that you can have a starting point from which you can research more.
When you take a quick look at payday loans, you can see that they are not really that different from other loans that you can get in the UK. There is a lender that borrows you money that you have to return in a specified amount of time together with the interest. In this regard, payday loans function like all other variations of loans. However, in some other respects, they are quite different and we wanted to point out these things for you so that you know what to expect and how to avoid any problems that might arise from taking out payday loans.
For one, payday loans are usually limited to £500 or £1,000 at the most. The main reason why they are so limited is that the lenders do not know much about people who borrow money except their very basic personal details and the fact that they have a steady income. Namely, with payday loans, there are no annoying credit checks involved which means that the lenders cannot be sure that you will repay the loan. That is why they have to limit their potential losses.
Another result of these high default rates on payday loans is that you will most probably have to pay a 25% fee when you take out a loan. In addition to this, the interest rates on these loans are exceptionally high, especially when you compare them with other loans in the UK. The interest rates are not regulated by the government which means that different payday loans lenders can have different APRs that often exceed 2,000%. The good news is that the lenders are obliged by the law to inform you of the height of their interest rates.
You should also remember that payday loans are supposed to be returned very quickly, in most cases come your next payday. This is actually a good thing as otherwise the interests would accumulate to such an extent that you would have troubles repaying the money. In most cases, the repayment is conducted automatically be predating a check or by automated money transfer once your next paycheck arrives.
Due to all the most important aspects of payday loans that we have mentioned, it is obvious that they need to be used carefully and only for minor financial interventions