Reports recently state that payday loans usage is growing heavily in the UK. The BBC news reported that over half a million payday loans are expected to have been taken out ovber the Christmas period, so that the individuals could afford the Xmas season. The loans are designed to be short term – to be paid back at the month’s end. If a consumer does not pay it back, the loan rolls on and the amount owed is increased. This is the danger of payday loans – if you really do need quick cash; please be sure that you can genuinely afford the interest rates and pay back on time – or face a rolling and increasing debt.
Most people in the UK will take out a loan at one time or another. Particularly nowadays, as the worsening economic climate has caused many problems for households, more and more people are looking for financial aid. Loans can be a necessary resource for many and people take out loans for a variety of reasons. Perhaps you want to buy a new house or car or you want some money to finance your business aspirations. It could also be that you need some money to help pay for an unexpected expense. The way they work is that lenders agree to lend you an amount of money that you agree to pay back in regular instalments over a set amount of time.
The loan industry is booming and as such there are a wide range of loans available on the UK market. Deciding on the right loan can be a stressful process but there are loans that suit a range of budgets. Before taking out any loan you should seek independent financial advice as all loans involve a level of risk and everyone’s situation and requirements are different. Always be fully aware of what you are applying for and weigh up all the pros and cons before committing. Listed below are some tips and advice that you should consider before taking out a loan.
- Remember loans are big commitments. To start with make sure the loan you take is within range of your resources. Take the time to assess your personal financial situation and be honest with yourself. Taking out a loan may mean that you have to change your lifestyle and scale back on certain things in order to make the repayments. You should therefore work out how you are going to budget the loan into your monthly spending. You do not want to be in a situation where you struggling to make ends meet each month. Even if you are offered more you should be realistic and not borrow more than you think you will be able to comfortably afford each month.
- Know your credit rating. Your credit report contains all your financial information and it is a valuable asset. It contains information concerning any credit cards and loans you currently have or have ever had. Many people do not realise how important your credit rating can be and it can be easily damaged simply by missing required payments for financial products. Your credit rating will determine how likely you are to get accepted for a loan, the amount of money you can borrow and what interest rates you will be given. You will find that the better your credit rating the better loan conditions you will be offered. Before applying for a loan it is worth knowing your credit rating so you can assess how much money you can apply for. Knowing in advance what lenders are looking at will allow you to make an informed and realistic decision concerning your ability to obtain a loan. You can access your credit report through a credit reference agency and many of these services are free.
- The loan conditions. Make sure you read the terms and conditions of the loan fully. You should look at how long it will take to pay off the loan because when you take out a loan you should try to pay it off as quickly as possible so you are paying less interest. Although having a loan for a longer time will make your monthly payments cheaper you will be paying it back for more time and the costs can accumulate so bear this in mind. Also make sure you know what happens if you miss payments. You need to think about how a change in your circumstances could affect your repayments. Make sure you are away of any costs involved because some lenders may charge heavy fines you for missing payments and your credit score could be damaged.
- Unsecured vs. Secured loans. All loans are secured or unsecured and there advantages and disadvantages of each. Secured bad credit payday loans are where you are required to put up an asset, used as collateral that is ‘secured’ against the loan. This is usually your car or home. With a secured loan because the lender has your asset as security there is less risk involved for them so you will often find you can borrow more money and will be given lower interest rates. However, there is more risk involved for the borrower because should you default on your payments then you risk having this asset seized. This means the worst case scenario is that your home could be repossessed. With an unsecured loan you do not have to put an asset up against the loan so there is less risk for the borrower but more for the lender and so you will find there are higher interest rates.
- Don’t rely on your bank. Most people will start with their banks when considering a loan as they already have a relationship with them. They are a good place to start in terms of seeing what their rates and overall loan costs are but they are very strict on who they lend to. As such, the online loan industry is becoming increasingly popular. Gone are the days of waiting months to find out whether you have been approved and lengthy application processes.
Take the time to research. With most loans you can apply online and have the money you need as soon as possible. As with any financial product when it comes to taking out a loan it pays to shop around. You should never accept the first offer you find before you have made sure there isn’t a better deal available elsewhere. Taking out a loan is a serious financial commitment and comes with responsibilities that you must commit to so you need to make sure that you are getting the best deal on the market. Comparing loans online is easy and does not take up to much of your time especially if you do it through comparison sites such as Which Way To Pay.
Payday loans are an increasingly popular way of getting small amounts of cash fast. These loans are unsecured short term loans where you borrow a small amount of money that you repay, plus interest, when your next pay cheque comes through. Payday loans are so popular because they are so easy to get hold of. The application process can be completed online in a matter of minutes and the money can be with you in as little as one hour. They are also very accessible and with no credit checks required pretty much anyone can get one. If you have been refused elsewhere, have outstanding debts or are a first time borrower you can acquire a payday loan.
Although payday loans are so easy to get hold of they should be treated with caution. The interest rates on these loans are very high and as such you should only take out a payday loan as a last resort. Payday loans should only be considered for emergencies. For example, to pay off an urgent bill or pay for home or car repairs or for those who are struggling to make ends meet before their payday.
The drawbacks of payday loans are that as the interest rates are so high the risk of debt is increased. Despite being able to extend paying back the loan you will continue to pay the interest which can accumulate. There may also be other costs for missing payments and you could find yourself in a tight spot before you know it. As payday loans are so easy to get hold of this makes them potentially dangerous particularly for those who are already in debt. Also with payday loans you can risk damaging your credit score which can affect you in the future when applying for financial products. You shouldn’t use payday loans regularly as they are expensive and only use if you are certain that you can repay what you owe plus the interest when it is due. Remember that payday loans are for short term borrowing and should never be used to solve any long term financial difficulties you might have.