Sometimes, life throws you a curve ball, and you might find yourself desperately low on cash. Maybe you want to clear a child’s tuition, medical fee, or other important expense. Unfortunately, credit might not be a viable option for people who need a short-term bridge for such expenses. That is where payday loans come in.
Unfortunately, payday loans have received a terrible reputation over the past few years. As a result, the entire industry has been ruined, from irresponsible lending and unlawful collection to extremely high-interest charges.
Fortunately, all this has finally changed, and the industry has significantly improved. Lenders are strictly regulated, have become more careful in their lending behaviors, and are more considerate of the borrowers who face payment challenges.
Payday Loans 101
A payday loan is an alternative to a short-term loan, primarily for unexpected expenses and emergencies. Generally, payday loan repayments should be made within a specified period, mostly your next paycheck, with the equivalent interest. They are mainly operated by private businesses and are not government-regulated. Before they approve your loan, the lenders will require you to provide the following:
- Proof of regular and stable income
- Your permanent address
- Your bank account
- A government document indicating you are 18 years and above
- A close referee who they can contact when you are unreachable
You will also be required to complete a form that allows your lender to withdraw the total loan amount plus interest. The lender will collect any additional fee directly from your bank account on the repayment date. You might also need to provide a valid postdated check of the loan plus other fees encashed on the repayment date.
Why Payday Loans Can Sometimes Be a Sensible Financial Option
They are Quick and Easy to Access
One of the most significant advantages of payday loans is that they are conveniently quick and easy to access. Unlike most traditional lending and borrowing methods, you can apply for a loan online from the comfort of your home or office. On the same note, the money will get into your bank account within the same day. This is what most borrowers love about these loans. After all, they are required to cover emergencies. Besides, there are numerous options for borrowers. For instance, most lenders provide payday loan products allowing more individuals to access this type of borrowing.
They Overlook Bad Credit
Most payday loan lenders are more willing to consider borrowers with bad credit, unlike most traditional lenders. This is because they do not care whether you have a chequered financial past. They only care whether the loan is convenient and affordable for you today.
They Have Lesser Requirements for Approval
Generally, payday loan acceptance and approval criteria are less strict than many other lending categories. As a result, low-earning borrowers and those with bad credit histories are easily verified, accepted, and approved by payday lenders. This is even though they do not meet the basic eligibility of high street institutions such as banks.
You are Guaranteed a 14-Days Cooling Off Period
Most borrowing categories under the Consumer Credit Act 1974, such as payday loans, have a 14-day cooling-off period. This means that you can cancel the agreement within fourteen days of your application if you change your mind. When you cancel this loan, you will still have to repay it, plus any accrued interest. However, your lender should refund any fees or charges you have already paid.
Payday Loans are Unsecured
Borrowers with a bad credit history and low income can access payday loans without providing an asset as security. Banks and other high street lenders usually require you to stake your home and car, among other valuables, as security. The properties cover the loss when you cannot repay what you owe. On the other hand, with payday loans, you are not required to put your personal property at risk.
They Are Easy to Manage
Most payday loan borrowers choose to handle their borrowing online. This makes the loan incredibly easy to control. Once your loan application is approved, you will have a personal online account. Here, you can log in, make your online payment, and view your current loan balance and all repayment details. This makes it easy for you to make advance loan repayments and be in total control of your account.
They are Always Available
Let’s get this out of the way. Emergencies happen at the most unexpected times. Fortunately, payday loans are available outside standard business hours. This means you can borrow money anytime, day or night. You can also easily manage your loans round the clock, making advance payments and checking balances anytime and as much as you need to.
Today’s Payday Loan Lenders are Authorized and Highly Regulated
The Financial Conduct Authority closely regulates the payday industry. Lenders must register with this authority before providing any service, such as offering loans or loan brokerage services. Once approved, they will be added to the Financial Services Register, which regulates the industry operations. That said, borrowers can take advantage of the security provided by the Financial Conduct Authority. As a borrower, it is crucial that you do enough due diligence and confirm that you are dealing with an authorized and regulated payday lending company.
Payday loans are lifesavers that can quickly bail you out of tight situations when you are low on cash. However, given the high-interest rates, you must learn how to manage your loan to avoid being trapped in a debt cycle. For instance, you should use something other than payday loans to cater to your daily expenses. On the contrary, it should be a temporary solution as you work to improve your financial solution.
You must also ensure that you make your payments timely to avoid additional fees and unnecessary penalties. This is an incredible financial discipline you should cultivate as it will help you minimize debt exposure making you a responsible and trustworthy borrower. Finally, remember only to borrow what you need, even when you are eligible for incredibly high loan amounts.