Summary: This article explains what a payday loan is, and under what circumstances an individual may get one.
Payday loans are a relatively recent phenomenon that more and more people are getting. They are generally a short term loan that are aimed at those needing money quickly. The reason they are called payday loans is that they are often taken out by those requiring additional income to get themselves through the month until their next payday.
Who provides payday loans?
Such loans are generally not provided by banks, but by what is in effect a 'loan shop'. Lenders must have a Consumer Credit Licence from the Office of Fair Trading and any advertising activity is regulated by the Advertising Standards Authority. Currently, there is no limit to the amount of interest that payday lenders can charge, and if a loan is not repaid on time, the costs can mount rapidly, which is one of the main causes of issues relating to the loans.
Who can get a payday loan?
The majority of loans are taken out by those that require money quickly, be it to pay essential bills or rent, or for non essential items. The appeal of payday loans is that they are generally very easy to get, even for those with poor credit ratings, which is why the interest rates are often so high. They are also administered very quickly, with some companies claiming to pay the money into the individuals account within as little as 15 minutes.
Should get a payday loan?
While payday loans may seem like a good idea for those needing a quick cash injection, there can be negative long term implications if they are not repaid by the due date. As to whether an individual should get such a loan would depend entirely on their circumstances and the reason for getting the loan. If the loan is to buy a non essential item, then it would be advisable to save up the cash rather than to get in to debt. If the loan is to pay for essentials, such as bills or rent/mortgage, then there could be an underlying problem that is resulting in the shortfall, and therefore financial advice should be sought as there could be another solution such as an Individual Voluntary Arrangement (IVA).