In most cases, nobody is ready to commit himself to a loan that they have no proper reason to spend. Situations of financial crisis are the ones that prompt desperate decisions. However, you can always access financial assistance through payday loans, which will help you to solve your emergency problem.
Payday loans assist you when you have a financial problem that requires immediate action. These loans are easy to access, but the interest rates are relatively high than the traditional loans offered by financial institutions.
There are many available licensed lenders, like Cashflex that can offer you this type of loan. Things that make these lenders popular with loans are:
- Instant reimbursement of funds upon loan approval
- Short application process with minimal documentation
- The approval process is not subject to your credit score
- Rigidity in following regulations
Notably, payday loans have become popular, particularly in the United Kingdom, with the emergence of the COVID-19 pandemic. These loans have helped UK citizens to resolve efficiently urgent financial expenses. They have come to the rescue of people who have lost their jobs, or their employers have affected pay cuts.
Before settling on a loan, there are fundamental aspects that you need to know. The following is a stepwise guide to payday loans that would be of great assistance when deciding to apply for this type of loan.
How Payday Loans Work
Payday loans are comparatively expensive to borrow. They were initially designed to help people with urgent financial challenges until payday. After making an application, the money is transferred to your bank account. Consequently, you are required to repay the amount in full at the end month, including interest.
Typically, you can borrow funds as well for more extended periods. Besides, there are loans with a repayment period of three months or more, and you pay in instalments.
Usually, when your loan is approved, you have to settle your repayment plus the interest until the date of your payday. Even so, some lenders allow you to negotiate the repayment period. Nevertheless, remember that payday loans are way too expensive and might worsen your situation if you cannot make the repayment on time.
What Will A Payday Loan Cost You?
The cost of these types of loans is regulated under the law through Financial Conduct Authority (FCA). The law limits the interest rates and fees charged for default repayment. Reportedly, a person borrowing alone for 30 days would pay at most a £24 interest fee for a £100 loan. In case you fail to repay on the required time, you risk a defaulter charge fee of not more than £15 in addition to interest to the amount you borrowed.
There is usually an overall cap meaning that you will never repay twice as much as you originally borrowed.
How To Avoid Payday Loans Trap
In instances where you are unable to repay a payday loan, the lender might offer you a rollover or deferral as an attempt to extend your loan span. Others even borrow you more money to offset the first loan. Nevertheless, they are capped to the number of times they can grant a rollover on loan. Instead, they inform you through an information sheet every time with free debt givers.
Noteworthy, rolling over a payday loan may seem like the best solution if you don’t have the full amount of money on time. However, it can rapidly transform into financial problems since, during the repayment large interest will accrue. Therefore, the best way of avoiding the payday loan trap will always be to repay the loan on time. Besides, you can source funds from other better alternatives that charge reasonably low interests for a more extended period. These alternatives may include credit cards, pay advances, credit unions, and overdrafts.
If you are about to borrow a payday loan, take your time and think about it, especially on the repayment plan. Check whether you are anticipating a pay rise or your monthly spending will reduce. Again, you may decide to have the repayment done in instalments, but you must be conscious of the fact that if you take a longer time, the interest will be high. You can find out how payday loans are regulated through the Financial Conduct Authority.