Payday Loans UK – All You Need To Know

In simple terms, payday loans can be defined as short-term cash loans that are supposed to be paid back when the borrower receives his or her next pay check. There are a number of lenders offering these loans in UK. As far as the amount of loan is concerned, it is usually restricted to around £750 and the repayment period is often restricted to a few weeks. 

These are unsecured loans and are supposed to be taken only when the borrower does not have access

to any other form of financing. For instance, it may be used for repairing your car to go to work or for another financial emergency.

Difference Between Payday Loans UK and Other Loans

The biggest difference between payday loans and other loans is that these loans are extremely short-term loans and the amount lent by the lender is a very small amount. These loans also have a very high APR (sometimes as high as 1500%) as compared to other loans.

Another major difference is that these are unsecured loans and the lender does not have any security to recover money in case of default. Most of these loans are available to borrowers without any credit check which means that people who have a bad credit history are also eligible for these loans.

For an alternative look at payday loans, the following video is quite an eye-opener.

Eligibility Conditions

As far as eligibility conditions of payday loans are concerned, these vary from lender to lender. However, some of the common eligibility conditions include:

The applicant needs to be permanent resident of UK.

• Needs to be at least 18 years of age.
• Needs to be employed. Some of the lenders also have minimum salary requirement.
• Should have a bank account that must be used for borrowing and making payment.

Application Process

The application process is extremely simple though it varies from one lender to another. Everything is done online. The applicant needs to fill up a form on the website of the lender. In the application form, the applicant needs to provide name, employment details, date of birth and some other details.

The eligibility check is done online and applicant is made aware of the decision within a few minutes of submitting the application. Once the loan is approved, the amount is credited to the bank account of the borrower within a few hours.

For a first-time borrower, the lenders usually approve only a small amount that is often around £100. However, lenders increase the credit limit once the borrower has established some repayment history with the lender.

Price Rules Introduced by Financial Conduct Authority

FCA introduced price rules for these loans in January 2015 regarding the maximum interest and fees

that can be charged by payday lenders. Now, interest and fees put together may not exceed 0.8% of the borrowed amount per day.

The upper limit for default charges is fixed at £15. The fees and interest to be paid back is limited to maximum of original amount borrowed.

Loan rollover is also allowed by FCA and most of the firms allow borrowers to roll over their loans.

Most of the applicants are approved for payday loans as the eligibility conditions are relatively relaxed. However, it is important that these loans are used only for financial emergencies. Also, the loans need to be repaid back on time to ensure that it does not turn into another financial problem.

Inability to repay these loans on time may seriously affect the borrowing ability of the borrower in the future.

It is important to enter any loan agreement with your eyes fully open. To help fill in some of the blanks, the UK Government offers a great guide which can be accessed by clicking here.

For more information relating to loans for bad credit, please return to our homepage.