A payday loan is a short term advance designed to tide you over financially until payday. Some payday loan companies, such as ourselves, allow you to choose the repayment period, rather than basing it on when you receive your salary. But how do payday loans work?
The lender usually pays the payday loan straight into your bank account, They often do this within 24 hours of approving your application. The lender will then take you payday loan repayment, plus interest, directly from your bank account on the due date. The typical charge is about £24 a month for every £100 borrowed.
How do payday loans work? – Interest rates
Advertised interest rates are typically around 1,300%. If you have taken out a payday loan and are struggling to pay it back, read more about your rights with payday loans, including template letters for writing to your payday lender.
Are Logbook Loans the Same as Payday Loans?
No. Leners secure so-called “logbook loans” against your car. So, if you fail to make repayments, you could lose your vehicle. This is as well as having to pay the high-interest charges. As there are often no credit checks, lenders often tempt customers who are struggling with other debt with these loans, putting their vehicle, and their finances, at risk.
What are the Alternatives to Payday Loans?
If you are desperate for cash, payday loans may seem like the best choice. But there are alternatives. For example, current account authorised overdrafts are usually much cheaper than payday loans for short term borrowing. However, unauthorised overdrafts are generally more expensive, so avoid them.
How do payday loans work? – Credit Unions
Another alternative is to join your local credit union. Credit union loans take longer to arrange but the law limits them to a maximum APR of 42.6%. even credit cards aimed at people with a poor credit history offer a better deal than payday loans. With a high APR of more than 30%, you will still pay less interest with this sort of credit card, but only if you are disciplined and pay it off over a short period.
If you only make minimum repayments, miss a payment or go over your limit, you will not only damage your credit rating but could also face penalty charges and your debt could spiral out of control.
