Payday loans are short term loans. They are usually taken for a few weeks. Most payday loans are around the mark of 100 Pounds. Payday loans have evolved from the old customs of loan sharks, who gave loans to people on harsh terms. The modern situation has changed significantly, especially with the new legislations that now govern the industry.
Understanding the important terms that govern these payday loans is important though as it allows you to use them in the ideal manner. Payday loans are usually misunderstood as a bad loan option, although they have their usefulness being the easiest procurable loans.
Here, we try to understand the finer details of payday loans and then discuss the key terms regarding them.
The Concept of Payday Loans
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 24 Pounds a month for 100 Pounds borrowed.
Key Terms Related to Payday Loans
There are many terms that describe various aspects of payday loans. These terms are important if you want to learn more about these loans. This will allow you to understand the dangers that are attached to these loans and also ensure that you are able to employ them in your best interests. Here are a few of these terms:
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.
Although most people take a payday loan of a few hundred Pounds, it is possible to take a payday loan of 2,500 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 200 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.
APR (Annual Percentage Rate)
The annual percentage rate or APR describes the actual percentage of the money that a borrower has to return in terms of the compounded annual interest which is charged over the actual sum. Payday loans have the highest APR rates of around 400%. 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%.
Criteria for Payday Loans
The criteria for getting payday loans are quite clear and moreover, you can easily apply for them over the internet. Usually, you need to answer some basic questions over the phone about your employment and demographic details. Your records need to represent the fact that you are easily able to return a loan within your selected time period. Here are a few basic requirements for applying for payday loans:
- You need to be a resident of the country as visitors cannot get a payday loan.
- You have to be an adult over the age of 18 at the time of the application.
- You must have a working debit account in which you can receive your loan as well as use it to repay it after the loan period.
- You need to have a mobile phone and email account. These facilities will be used to communicate the secure details for the transfer of money.
- You must be employed in some capacity and able to show that you have a minimum monthly income of 500 Pounds.
If you truly want to pick the best payday loan deal out there, then you can use the loan comparison tool at https://paydayloans.quiddicompare.co.uk/ and find the best payday lender.