Clear and Fair Loan Comparison
The pros and cons of payday loans and how to use them wisely
Payday loans are a product designed for specific circumstances. If used unwisely, these loans can leave the customer in a worse financial state and lead to unmanageable money problems.
However, if used correctly, a payday loan can quickly and easily solve short-term cashflow issues, right when customers really need the financial help.
The advantages of payday loans mean they allow customers to manage sudden and unexpected costs with the least amount of stress.
- Payday loans are very quick and easy to apply for, particularly compared to other types of loans. Most lenders only require you to fill in an application form online and often you get an instant decision.
- Lots of direct lenders can process your loan transfer within hours if not minutes, including at weekends and any time of the day or night.
- You may be more likely to be accepted for this short-term form of credit, even if you have a poor credit record, compared to other types of borrowing. If you repay on time, this may even help your credit rating to improve.
- You can borrow small loan amounts over periods as short as one day, and often repay early at no extra cost, so with a payday loan you don’t have to pay for any more than you actually need.
- The payday loan industry is regulated by the Financial Conduct Authority so there are regulations in place to ensure lenders treat all customers fairly.
You should NOT take out a payday loan if you are in financial difficulty and know that you cannot afford to repay it.
- Since the interest rates are very high for this product, the amount owed will increase very quickly the longer the loan remains unpaid. Some lenders add extra charges if your loan isn’t settled on time so it’s important not to get caught out.
- Similarly, payday loans are not intended for long-term borrowing. A payday loan will not solve deep-rooted financial problems. Customers can end up trapped in a spiral of borrowing if they don’t address the underlying issue that led them to take out the loan in the first place.
- Keep your credit rating in mind. Your borrowing activity will appear on your credit file and any late payments will be reported to the credit reference agencies. Having overdue payday loans, missed payments or defaults on your credit record may make it more difficult for you to get credit in the future.