15 Mins Payday Loans

Payday loans are an American invention and they have been a part of the American culture for decades. However, here in the UK, they are still a relatively new type of a financial service and not that many people are aware of payday loans and what they can do for them. Still, that being said, it needs to be pointed out that in the last three years, the number of people who are taking out payday loans has grown substantially. This can definitely be traced back to the beginning of the financial crisis that has hit the United Kingdom very hard. In this article, we will be giving you a short introduction of payday loans in the UK.

First of all, we should say a thing or two about how payday loans work. In essence, they are not that different from other more famous types of loans. You borrow money from a licensed lender and you pay an upfront fee on the amount of money you take out. This fee is in most cases 25%. This means that when you take out a loan of £100, you pay a fee of £25. When the time comes to pay back the loan, you repay the money complete with interest. There are however, certain differences that make payday loans very different from other types of loans available in the UK.
Most importantly, the interest rates on payday loans are significantly higher than on other types of loans. In fact, the government does not regulate the APRs on payday loans which leads to the height of these interest rates to become exorbitant.

This was influenced by the fact that the lenders themselves are often victims of fraud and defaults on their loans, which means that they need to charge more on interest in order to cover for these losses. In addition to this, it has to do with another big difference between payday loans and other loans available in the United Kingdom. Namely, payday loans are usually repaid in a very short time period, in most cases two weeks or even less. If these loans came with lower interest rates, the lenders would not be able to make enough money for it to make sense.

As you can see, there are certain differences that make payday loans very specific and it is because of these differences that payday loans need to be used very carefully. They are not supposed to become a way to finance your budget, but only a solution for unforeseeable circumstances in which you have no other option than to take out a payday loan.

In the last paragraph, we would like to share some numbers that were obtained by the latest studies into payday loans. Namely, people who take out payday loans, on average take out about 3 loans every year, with the average amount of money they take out being somewhere around £300. Also, the majority of the people who take out payday loans earn less than £25,000 per year.