Payday loans are, in simple terms, short-term, unsecured loans. This means that they are awarded based only on the credit score of the borrower, meaning it’s important to assess whether you are able to pay it back before you take it out. A short-term loan is given without the use of property as security for repayment of the loan. In order to receive a payday loan, you’ll usually need a high credit score, so this is something to consider before thinking about taking one out.
Payday loans differ from other types of loan in that they only last a short amount of time, usually from a couple of weeks to a month, and it is normally expected they are to be paid back when you receive your next pay check. This means they’ll have a high APR, or Annual Percentage Rate. This is the amount that will be charged to you for borrowing the money. It’s usually shown as a single percentage rate, and will include any fees or extra costs associated with taking out the short-term loan.
Short-term payday loans will usually have a very small credit limit, and are used normally for emergency situations, such as not being able to pay a bill or mortgage payment when it is needed, or having emergency work that needs doing to your car or home. Any unexpected bills may also be covered by a short-term payday loan.
It’s just important to make sure you’ll have the money in your next wage packet before you take out the short-term loan, to ensure you can pay it back at the right time.
The main understanding when a payday loan is taken out is that it will be repaid on receipt of your next wage. The borrower of the loan will usually write a post-dated cheque to the loan provider, as security for repayment of the loan. The payday loan lender will hold onto the cheque until the pre-arranged repayment date, when they’ll cash it in to receive repayment.
There has been some controversy over payday loans, but if you ensure that you will be able to repay the short-term loan back to the payday lender, they are great ways of obtaining money fast for last minute bills you weren’t expecting. They are loans that are absolutely meant to be taken out over a short period of time, and it’s not wise to continually take them out month after month. This can lead to huge amounts of debt, and you may end up having severe money problems.
The best way to take out a payday loan is to keep in control. Keep an eye on your finances, and only take out a payday loan if you absolutely need to. Get yourself out of a monetary bust and take out a payday loan to give you quick peace of mind about your unexpected bills or charges.