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Payday Loans for Emergencies: A Guide for First-Time Borrowers

No one can predict when a financial emergency can arise in your life. However, it is not always easy to obtain a secured loan to solve financial issues. That is why an unsecured payday loan can be the perfect alternative. If it is the first time you are applying for a short-term loan, you can go through the comprehensive guide.

Also known as check advance or cash advance loans, payday loans are available with a higher interest rate. The loan amount is based on your earnings. However, there are laws to control interest rates and high fees with these cash advance loans. 

Know more about payday loans

A payday loan gives you the quickest solution during your financial crisis. The loan amount can be up to £5,000, and you will receive instant cash. Some lenders also deposit the loan amount to your bank account.

You need to fill out an application form online or offline. A bank account number and the latest pay stub are important documents needed for a loan application. You may allow your loan provider to withdraw the fund automatically from your account for repayment.

Most lenders charge £15 to £20 as interest for every £100 you have borrowed. The APR for this loan may start from 390%. 

What happens when you are unable to repay the payday loan?

When you cannot repay the loan within the deadline, you can ask your creditor to roll over the payday loan. However, this rule is not applicable in every state. You need to pay only the due fees. For instance, the average amount for a payday loan is £375. The lowest charge for the loan is around £15. So, if the loan amount is £431.25, the charge will be about £56.25. 

Is a bank account essential to obtain a payday loan?

It is not always obligatory to have a bank account to apply for a payday loan. However, in most cases, lenders who do not need a bank account charge a higher interest rate. Reliable payday lenders ask borrowers to provide bank account details.

You can also use your prepaid card account to be eligible for the loan. It is important to know about the additional charge imposed by the lender. Make sure that you can pay the loan, including the extra charges. 

Payday loans in your credit report.

If you have applied for a traditional loan, it will be shown in your credit report for about 6 to 10 years. So, it will affect your potential to borrow funds in the future. Lenders do not inform the credit bureaus about the loan or overdue repayments. However, in the case of a payday loan, it is filed after the creditor sells the debt.

If the payday loan is repaid on time, there will be no negative effect on the credit score. On the contrary, in case of the failure of the repayment, your credit score may get lowered.

Tips for first-time applicants of payday loans

These few tips will help you solve your queries.

  • Read the terms and conditions

If you have thought of applying for a payday loan, go through the T & Cs related to the loan. The repayment period is usually short, while the interest rate is high. You need to pay the loan within 15 to 30 days. That is why the total loan cost is higher than traditional financing options.

  • Employment proof

You need to show your income proof or employment proof for your payday loan application. You need to show your bank account statement and a valid ID as well. Some lenders may ask you to submit a post-dated check.

  • Consider the available options

Before availing of a payday loan, you should evaluate other options. For instance, you will be able to borrow funds from friends and families. It is also essential to ask the lender about the payment plan negotiation.

  • Know about interest rates

Now every payday loan provider has the same rate. So, you can compare the interest rates offered by lenders. Repayment terms, fees, and APR should also be compared.

  • Ensure your ability to repay the loan

You should not consider a payday loan as a long-term financing solution. When you are in sudden need of money, this loan is the right choice.

  • Request assistance

Perhaps, you are facing challenges in repaying the loan. You can communicate with your lender to extend the repayment period. You may also contact a credit counseling service provider to get the solution.

However, it is better to avoid obtaining multiple payday loans. It results in a debt cycle, and you cannot get rid of the financial trouble.

Here are some important facts about payday loans that may be useful for first-time borrowers. Once you have reviewed the information, select the most suitable lender and apply for a loan online.

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