What is Payday Loan?
Many of you would be still unfamiliar with the concept of payday loan. It’s not the complicated after all. Payday loans are merely short-term loans. Usually taking up to a couple of weeks, most payday loans are loans amounting to as low as 100 GBP.
Payday loans have evolved from the old customary of loan sharks who used to offer on very harsh terms and conditions. However things have changed. As we progress into the 21st century and the new legislations that govern the framework have changed the entire landscape of the entire arena.
Coming to terms with the modern way and how payday loans have served to fill the gap in the short-term lending industry. Payday loans are not a bad option if you use them in the right way. Often misunderstood as a bad loan option, their usefulness makes them the easiest procurable loans. Let’s try and understand the intricate details how the function.
The Concept Explained
A payday loan is a high interest loan, which a person can procure without going through a lengthy process of getting their credit score checked. The lending organisations reduce their risk by charging the maximum interest they can.
The interest on these loans was uncontrolled just a few years ago and a small loan could easily turn into thousands of dollars within a few months. When loan sharks started to use the payday loans in order to vandalise the borrowers, the authorities stepped in and created the new balanced system where the total interest regardless of the amount of time standing can never increase beyond 100% of the original value of the loan.
The main purpose of payday loans now, is to allow people with poor credit histories to get small sums of money that they can use for a number of purposes. These loans are designed to be paid back, as early as possible in order to reduce the interest charges on these loans. The maximum interest that loan lenders can charge is 22 Pounds a month for 100 GBP borrowed.
Key Metrics You Need to Understand
Various terms are mentioned in the contract pertaining to payday loans. A basic know-how of these terms would enable you to navigate easily within the scope of the topic. Let’s dive deep and try to explain the jargon that one usually comes across when applying for payday loans. As they say, always prepare in advance for a rainy day!
The following is a list of jargon that any customer applying for a payday loan is bound to come across:
Annual Percentage Rate
The annual percentage rate (acronym: APR) determined the exact percentage of money that a given borrower must pay to the lender including the compounded yearly interest.
Payday loans have the highest APR rates of around 4 times multiplied by the principal. This APR can make payday loans look a lot worse than they actually are. Credit card loans with double digit interest rates often end up with much less interest being paid than the one charged on payday loans.
For people, who use payday loan as an occasional helper, the actual interest usually does not go out into these extraordinary percentages. But it is still used to make payday loans a very bad financial product. Recently, the actual interest has been limited to rise to a maximum of just 100%.
Although most people take a payday loan of a few hundred Pounds, it is possible to take a payday loan of 3,500 Pounds as well. Many payday lenders allow you to build a credit history with them, and take on larger loans if you have been successfully repaying your previous loans. The limit of most lenders is around 500 Pounds for people who are taking a loan for the first time.
Banks and other lenders however, are satisfied when issuing loans that are in the range of 100 to 500 Pounds. The loan amounts can easily be repaid by using the continuous payment authority system, in which you allow the lenders to charge a certain amount of money from your account on each payday. The automated system ensures that you return your payday loan in a controlled manner and do not have to worry about making the required payments on each payday.
The term loan period describes the time in which you have to return the loan. The normal time periods that are used with payday loans are those of one week, two weeks and three weeks. There are also some lenders that allow you to pay the loan back in two months. Some lenders allow you to gradually repay your loan over the next year.
The ideal loan period is around two weeks. It signifies that you will pay the loan back on your next payday. You should therefore, always select a payday lender, who allows you to repay the loan in your required time.
Always keep some time for contingency planning. This means that if you are able to repay the loan in two weeks, then you should get a payday loan that you have to repay in three weeks. For a loan that you intend to return within a month, it is best to select a plan that allows you to pay within two months. Selecting a loan with a longer period may cost you a few Pounds, but it will ensure that you are able to build a good credit history.
Payday Loan Essentials
The criteria required to access short-term loans aka payday loans are quite explicit and self-explanatory. Usually, you need to answer some basic questions over the phone about your employment and demographic details. Your records must show that you will be able to return the loan within the specified time window without having to go through too much hassle.
Moreover, it is required that you are an adult over 18 and a citizen of the country where you are applying for a payday loan. Among other things required, you need to have a mobile phone, a working debit account and an email address in order to facilitate communication between you and the lender. You also will have to provide details of employment with a minimum income of 500 GBP per month along with your credit history.
So if you have made up your mind regarding acquiring a payday loan and are on the lookout for the best payday loan deals available on the internet, you can make use of the best loan comparison tool at paydayloans.quiddicompare.co.uk/. Find the best payday lender using Quiddi Compare and enjoy!