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Most people have heard of a payday loan. They are famous for having high interest rates, and are thought to only be aimed at individuals with a bad credit score. But these are generalisations – there may be more to a payday loan than you realise.
Payday loans are a type of short term credit that’s repaid in one lump sum, typically on your next payday. You may have an unexpected expense, such as your car breaking down, or your fridge needing to be replaced. If you didn’t have enough money saved to pay for this expense, you could take out a payday loan to cover the cost.
As paying back a large amount of money in one go often isn’t possible, most payday lenders don’t offer payday loans over a few hundred pounds. The duration of a payday loan is usually between a couple of days and a few weeks. The maximum is around 35 days.
In terms of loan interest, this is usually measured in APR, which stands for Annual Percentage Rate. When it comes to long term loans like mortgages, the APR is incredibly important. This is because you’ll be paying back the loan over a number of years, so even a small change can make all the difference. But with short term loans, the APR can be misleading.
Because you don’t borrow a payday loan over the course of a year or more, knowing the annual interest rate isn’t that helpful. Some payday loans have APR rates of over 1000%. But that doesn’t mean that you’ll be paying back more than a thousand times what you borrow. The rates will vary from lender to lender, but on average taking out a loan of £150 over 7 days would cost around £8 in interest. So the interest rates are probably lower than you’d think.
It’s also important to note that with a payday loan you only pay interest for the time you borrow the money. So rather than taking out a bank loan, repaying over months or years, you can just borrow how much you need to. You can pay back the funds as quickly as possible, to save money on interest. Payday loans also don’t tend to have early payment fees like a lot of bank loans.
A lot of people believe that payday loans are only for those with a bad credit history. And while payday loans can be a good solution for people with a low credit score, they are also a flexible option for anyone looking to borrow a small amount of money over a short period of time. You can choose exactly how much you need to borrow, how long for, and the best date to repay the funds.
You may have also heard that payday loans look bad on your credit file. It’s even been said that they can stop you from getting other loans. But most lenders view all loans the same way when calculating your credit score. It wouldn’t matter if it were a payday loan or a bank loan.
Taking out any type of loan can actually help you build up your credit score. By making payments on time or early, you’re showing that you can properly manage your money. Lenders therefore won’t be taking a risk in lending to you. And if you have no credit footprint, borrowing can additionally show other lenders that you are responsible with your money, and prove your creditworthiness.
If you find yourself facing an emergency expense, and need to borrow money fast, you may consider taking out a payday loan. But if you have never looked into payday loans before, or are worried about your bad credit history, you might not know where to start.
In these instances, it can often be helpful to use a broker service like My Financial Broker. We can compare payday lenders for you. We can also match you with the lender most likely to approve your application from our large panel of lenders.
And if you have bad credit, applying using a broker service can increase your chances of approval. Each time a hard check is performed on your credit file, as often happens with loan applications, it leaves a footprint. This can lower your credit score. So if you apply with lots of different lenders to see which one approves your application, you can damage your score. My Financial Broker only perform soft credit checks, which don’t leave a footprint. You can then just make one loan application with a lender.
So if you’re looking to take out a payday loan today, My Financial Broker can help! Even if you have a low credit score, we may be able to match you with a lender. Our services are completely free to use, and we can provide you with an instant onscreen decision with no obligation.