A payday loan is a short-term borrowing method designed to bridge the gap until payday. Once you’ve applied for a payday loan or alternative to payday loan, it’ll be transferred into your bank account near-instantly. The amount that you borrow from a payday loan direct lender will depend on the company you use and its limits.
You’ll also arrange a repayment period in which you’ll pay back the amount borrowed plus interest in instalments.
Like most short-term borrowing methods, there are benefits, risks and information of which you should be aware. You should evaluate your financial situation accordingly before committing to anything. However, if you’re considering borrowing money but don’t know for what to be looking out, here are six things that you need to know about payday loans.
1. Eligibility
The truth is that each payday loan provider works differently. Every application has different hoops through which you’ll need to jump. To make your life easier, it’s worth checking whether you’re eligible for a fast payday loan or not. The main eligibility checks that a payday loan provider will carry out are:
- Age
- Credit score
- Steady income
Payday loan direct lenders need to have this information as they need to know that you’re a responsible borrower. If you’re seen as a risk or careless with money, your chances of getting a payday loan are slim.
There are other alternative short-term borrowing methods, such as a line of credit, which offers a different product, different eligibility checks and different benefits. Take a look at a Drafty line of credit to see what the fuss is about.
2. Effects on Your Credit Score
There’s no doubt that taking out an instant payday loan will have an impact on your credit score. If you’re irresponsible with your borrowing, miss payments or continuously take out new loan agreements, your credit score will be negatively impacted.
However, if you manage your payday loan correctly and make your repayments on time, it could have a positive influence on your credit score. Similarly to a line of credit, making payday loan payments on time will demonstrate your ability to manage money and be a reliable borrower.
3. Interest Rates
The Financial Conduct Authority caps the amount of interest that payday loan direct lenders can charge. By law, they must keep interest and additional fees to a minimum to protect the safety of borrowers. There is also an overall cap which ensures that borrowers will never pay back more than twice the amount that they use.
In truth, there isn’t a one-size-fits-all rule to payday loan interest rates. Each company is different and has its own policy. Doing your research and reading the fine print offers the best chance of staying in control of your situation. While you explore your options it might be good to look for payday loan alternatives like a line of credit – you might find them better suited to your needs.
4. What Can I Use a Payday Loan To Do?
Payday loans are typically used for those unexpected costs to catch you when you least expect them. For example, if your washing machine gives up the ghost and you need some extra cash to cover the costs, a quick payday loan will help to ease the financial pressure.
Speaking from experience, a Drafty line of credit works similarly – but without the added difficulties. Our quick and easy service works in the same way that you’d use a quick payday loan. You can get rapid financial relief safely and securely.
5. What Are The Disadvantages of a Payday Loan?
As with all forms of short-term borrowing, there are risks attached. Before beginning a payday loan application, you must ensure that you know all the facts. If you start clued-up, there will be no nasty surprises along the way. The two largest disadvantages of payday loans are:
- High-interest rates – If you’re looking for an instant payday loan, you might face higher interest rates as you’re borrowing over a short period.
- Borrowing cycle – As payday loans for bad credit often have higher interest rates, your repayments might add up quickly and affect your financial stability in the long term.
6. Alternative Products
If you want to borrow money over a short period of time, there are more products on the market than just payday loans. Short term loans, same day loans, bad credit loans, a line of credit and many more are similar products, each with different methods of lending.
For example, A Drafty line of credit is a flexible, easy-to-use alternative to loans, overdrafts, credit cards and credit cards for bad credit. Our line of credit offers a fresh perspective, helping you to boost your finances while staying in control.
We do things a little differently here, too; for example, you can reuse your credit line as much as you like without having to reapply each time. What’s more, you can repay a little extra at any time and you’ll save on interest.
Looking for a payday-loan alternative? Apply for a Drafty line of credit today at Representative 96.2% APR (variable).
Disclaimer: We are not providing financial advice, these are just tips for informational purposes. Also, we are not affiliated to any of the external parties linked here. They are provided for reference only.
