Payday loans have transformed the way people borrow money, and are becoming an increasingly popular form of credit. Unlike more traditional loans, whereby the consumer would have to wait a considerable amount of time to find out if their application had been successful, the payday loan application process is fast and simple. Here are some of the ways the payday loans and direct lenders differ from conventional forms of finance.
What is a payday loan?
A payday loan is a fixed sum that is paid to an individual which is intended to cover a shortfall in funds or to cover the cost of a financial emergency. The loan is expected to bridge the gap between the date the money is awarded and the borrower's next payday, which could be several weeks away. Depending on the lender and the conditions of the loan, the borrower will usually have to pay the loan back when they next receive their salary. Because of the short repayment period, payday loan amounts are often much less than regular bank loans. However, the interest charged reflects this and can be higher than a regular loan or credit card. The advantages to this though are the ease of access to funds in a difficult time that can prevent extra bank charges or overdraft charges being added to your account. The loans are only designed for short term borrowing so the interest charges reflect this.
Why are payday loans direct lenders different?
Many people are attracted by the time it takes to apply for a payday loan. The application process is normally much simpler than that of a regular bank loan, and the borrower is often given an instant decision as to whether their application has been successful or not. In the majority of cases, the lender will approve the loan based on the information provided by the borrower and the results of a credit check. If the credit check is unsuccessful, or if the lender requires more information, the borrower may need to provide proof of their income in the form of a bank statement or wage slip. These documents can be emailed directly to the lender to save on the time it would take to post these items.
The time it takes the lender to deposit the funds into the borrower's bank account is also considerably less than a regular bank loan. If an application for a payday loan is accepted, the borrower may receive the funds in their bank within a few hours, allowing them to cover the cost of an unexpected bill or emergency.
If the payday loan is not paid back in time, the lender may add late payment fees as well as interest on the loan, making it more difficult to pay back the sum. It is essential you contact the lender in order to resolve late payment issues, an agreement can then be made to work out a plan so you can clear your arrears in a way agreed by both parties.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk