What is a Payday loan?

A Payday loan is a short term, high interest loan that you pay back on your next pay day. Typically a Payday loan is available for amounts up to £750. Payday loans are for people who need money now. Payday loans should be used as a last resort if you are in financial dire straits or faced with a one off unexpected financial emergency.

Many Pawn shops and Payday loan shops offer a cheque cashing facility where you write a post dated check and you receive cash minus the lending fee. To apply for an online Payday loan you need a bank account and regular income which you don't need to cash a cheque. Payday loans online are also known as instant pay day loans, cash advances, same day loans, Payday advance loans, cash till Payday loans or small unsecured loans.

UK Payday loans are available irrespective of credit history. Payday loans are available with no credit check and most Payday loan lenders only require your name, address, date of birth and work and payroll details so guaranteed Payday loans are out there if you have sufficient income and a bank account. Even if you have a poor credit history, bad credit Payday loans are available and if you have no credit history no credit Payday loans are available from UK Payday loan lenders and Payday loan stores.

Who needs a Payday loan?

Picture this: It's coming towards the end of the month, your mortgage, loan or credit card payment is due to come out of your bank account before your next Payday but your wages are all spent. If you can't find the money you may pay the price twice. You will be charged a late payment fee by your lender and charged a late payment penalty by your bank for a failed direct debit. On top of that you may and have a black mark on your credit file which may cost you money further down the line. You may benefit from a quick online Payday loan.

Perhaps your car is broken or you have just realised that the MOT has run out. You need your car to work but can't afford to take it to the garage. You can't wait until Payday. You need a fast cash Payday loan.

You need to arrange child care but don't have the money until Payday. You may need a loan until Payday. You can do this with an online Payday loan lender or at a Payday loan shop.

If you need a cash advance until pay day then it may suit your needs to apply for a Payday loan.

What are the benefits of a Payday loan?

Payday loans are a short term borrowing solution for immediate financial problems. If you are going to default on a mortgage or loan payment then you may be charged a late payment penalty by your lender and be charged a late payment fee by your bank. These late payment fees could add up to a significant sum. The interest charged on an emergency Payday loan may be less than the late payment fees and the Payday loan could save you money, as well as protect your credit rating.

• Avoid late mortgage payment charges
• Avoid the cost and embarrassment of bouncing cheques
• Protect your credit rating
• Pay Final Demand Bills
• Sort out an unforeseen emergency now

What are the downfalls of a Payday loan?

Payday loans are not a viable long term solution for financial difficulty. You may be charged additional fees if you need to extend the loan term and the outstanding amount could soon spiral out of control towards bankruptcy. Payday loans have been criticised for the exorbitantly high interest rates that are charged. Rollovers are common, some even claim that the majority of people renew their loan, leading to even higher interest rates. The lifeline that you use for that one time emergency can all too often become habitual. It's so easy to apply for a Payday loan but it is not good financial advice to apply for a Payday loan to grab a bargain before the sales are over.

Payday loans have more than doubled since 2007 with more and more Payday loan companies entering the market. The growing popularity of Payday loans may be seen as a consequence of the credit crunch and it could be argued that unsustainable levels of personal debt are only being fuelled by the number of Payday loan stores and online Payday loan lenders.

Payday loans are not ideal for all situations it's all a case of weighing up the pros and cons.

Why is the APR on my Payday loan so high?

An APR is an annual percentage rate and was introduced so that you can compare the total cost of borrowing for each year that you have a loan. UK Payday loans are regulated by the Consumer Credit Act so in most circumstances UK Payday Loan companies have to display the typical APR in any advert relating to a Payday loan. This is always true if the advert relates to a bad credit Payday loan, poor credit Payday loan, no credit Payday loan or any other cash advance until Payday that is aimed at anybody who otherwise may struggle to obtain finance. As Payday loans are designed to be paid back in weeks rather than years, comparing APRs is not necessarily the best way to choose which solution is best for you. Typically for a Payday loan you will payback £25 for every £100 borrowed. So for a £500 Payday loan you will pay back £625. Because of the way APRs are calculated, and although you have actually only paid back an extra 25%, the actual APR on this loan would be 1737%. If you borrowed the same £500 at an interest rate of just 16.9% over 36 months, you will actually have paid back £745 over the term; that's an additional 49% compared to the 25% you pay with a Payday loan. The APR is so high because you have not been allowed to pay the loan over a much longer period and the pay smaller loan payments each month. If you are considering a Payday loan, search the market, consider the alternatives and whatever option you chose make sure that you read the small print and understand the agreement that you are entering into.

Alternatives to Payday Loans

Credit Cards: Although the average credit card interest rate is higher than with an unsecured or even a secured loan, it is still much cheaper than with a Payday Loan. 0% introductory rates are great for low cost short term borrowing. Even without a 0% introductory rate, most credit cards do not charge interest for the first 56 days so a credit card will usually work out much cheaper than a Payday loan.

Current Accounts: If you have an authorised overdraft on your current account then this could be another cheap alternative to a Payday loan if and only if you have a short term problem. Beware though, if you go overdrawn without prior permission, the charges from your bank could be more expensive than the charges associated with a Payday Loan.

Unsecured Personal Loan: Like Payday Loans, credit cards and overdrafts are both short term solutions for short term problems. You will eventually start to pay interest on your credit card and if you stay in your overdraft you may face monthly charges and interest on top of that. Search the market for low cost unsecured loans to see how the rates compare.

Local credit union: Credit unions are run as non-for-profit organisations who offer savings, loans and current accounts to their members. For loans below £1,000 they can be very competitive loan rates and sometimes the only alternative to a Payday loan or doorstep lending. The only disadvantage is that you will have to be a member first and sometimes you will have to save money with them for months before they will grant you a loan.

Not found what you're looking for:

• compare personal loans and search the market online for the best low rate unsecured personal loans
• search the whole of the market online and compare secured homeowner loans using our secured loan calculator
• compare bad credit personal loans online to get the best bad credit loan rate
• struggling to get credit and have been turned down for a loan use our free refused credit tool
• Find popular loan companies
• Debt problems? Get debt help, with debt consolidation loans, IVAs and Debt Management Plans