Payday loan companies were once at the front of a rather large scandal, with several lenders being irresponsible with their dealings with customers. People were able to borrow much more money than they could actually afford to repay and the high-interest fees and penalty charges were enough to make your eyes water. So, if you’re in need of some funds to cover an emergency expense, it’s no surprise if you are a little sceptical about the prospect of getting a payday loan.
However, the good news is that today, things have certainly changed for the better and many payday lenders are being much more responsible. Stricter rules and regulations have been brought in that forbid payday lenders from providing funds to anybody who would be unlikely to afford the repayments and while interest is still higher than other options, penalty fees are capped. So, if you’ve had an unexpected bill or need to replace a broken-down appliance, there are many ways a payday loan can help. But before you apply, keep the following in mind:
Consider Using a Broker
A broker like Payday UK can help you get the best loan for you within minutes. They work by matching potential customers with the most suitable loan companies, allowing you to find a company that works well for your budget, can provide you with the funds that you need and, more importantly, will accept your application. If you have a bad credit rating, a broker can help you with finding bad credit loan options that may be more suitable for your situation. They will take your information and present it to a panel of direct payday lenders before showing you the ones that have pre-approved you, minimising your chance of a credit rejection.
Set a Budget
Before you apply for a payday loan, it’s important to know that you’re going to be able to comfortably repay it. Take some time to sit down and go through your monthly income and expenses to figure out how much you will have to put towards making loan repayments. Many payday loan companies offer the option of paying it all back in one go on your next payday or spread over several instalments. While repaying in full is always going to be cheaper in terms of interest, the last thing that you want to do is put yourself in financial difficulties due to paying more than you can afford back at once. Determine how much you can afford each month to repay the loan in the shortest possible timeframe, and apply accordingly.
Know How Much You Need
A common trap that many borrowers fall into when they are applying for a payday loan is to go for the full amount that is available to them, rather than only borrowing what they really need. And it can certainly be tempting if you only need to borrow £100 but you get a message telling you that you can have £500 in your account today. After all, who wouldn’t say yes to extra money? But remember, that additional cash isn’t free – you’re going to have to pay it back and the interest rates on a bigger loan will add up. Consider exactly how much you need to borrow to cover your expense and avoid getting any more than is necessary.
Research the Company
Whether you go through a broker or directly to a lender, it’s a wise idea to research the company before you make your application. The good news is that today, the majority of payday lenders in the UK are heavily regulated and can usually be trusted to be responsible, but there’s still a small handful that have fallen through the cracks. A quick Google search or a search on sites like Trustpilot should help you find out more by reading what past and current customers have had to say about the particular company and make it easier for you to decide whether or not they are a safe choice for you.
Finally, if you are already paying off a lot of debt or would simply rather avoid borrowing wherever possible, it’s worth considering the alternatives available to a payday loan. If you can, borrowing the money from family or friends can be a good idea since there’s usually no interest to pay and it’s much more flexible, not to mention that it won’t touch your credit score. But if that isn’t possible, you could look into local credit unions, or ask your employer to give you an advance that you can repay to them directly from your wages over the next few months.
Payday loans are an increasingly popular choice for those who have an emergency expense to cover. But before you go ahead and apply for one, it’s important to keep these key factors in mind.