When seeking financial help, many of us turn to online lenders to find the support we need. With funds available in a matter of clicks, this can be extremely convenient, especially as many loans are available 24/7. Payday loans in particular have long been a popular choice for quick cash, but how can you ensure you are making the right choice for your finances?
The good news is, that you can find affordable payday loans to match your budget and thanks to tighter regulation from the Financial Conduct Authority (FCA), authorised lenders will follow responsible lending guidelines designed to ensure you are treated fairly as a customer. To help, below we’ll share some top tips to ensure you always make the right choice when you want to borrow in the short term.
Why Choose Payday Loans?
Sometimes, you have no choice but to seek an online lender for help settling an unexpected expense. If you are someone with no emergency savings, for example, a payday loan can be suitable for a short-term issue. Similarly, if you are in between paydays and friends and family are unable to help in the meantime, you may want to consider one.
A payday loan can be ideal when you have exhausted other options first to settle an unexpected bill or an emergency expense that cannot wait. As they are quick to apply for online, if approved, they can help you resolve a situation the same day in most cases and repay with affordable monthly repayments.
Pros and Cons of Payday Loans
Like any form of loan, you’ll want to ensure before applying for a payday loan that it is the right choice for you. You want to take a responsible approach to borrowing money rather than becoming reliant on credit, so being aware of the pros and cons can help you make an informed decision.
Flexible repayments
many payday loan lenders now provide added flexibility to their loan terms, meaning you no longer have to settle the balance in full on your next payday. You can choose to spread the cost of the loan over a few months, with many lenders offering repayment terms between 3 – 6 months if you need it.
Small Loan Amounts
Unlike a personal loan, a payday loan enables you to borrow smaller amounts under £1,000. This can be ideal when you only need to borrow a small loan for the short term, so you can choose between £300 and £600 if that’s all you need to settle your emergency expense.
Hidden Fees
Most lenders will provide full transparency of the loan terms, but you may find some lenders that still have hidden fees. This can be things like late payment charges, admin fees, early settlement fees etc. Make sure that you check the full terms before signing the credit agreement.
Interest Charge
You may find that the APR on a payday loan will be a lot higher than on a personal loan. One thing to keep in mind about the interest charge is that as a payday loan repayment term will be for 3 – 6 months, for example, this is for a shorter period than a personal loan which would typically be for 12 months or more. Check that you are happy with the interest charge on the amount you want to borrow before proceeding.
H2: Responsible Borrowing Practices
To ensure you make the right choice for your situation, keep the following responsible borrowing tips in mind when seeking a payday loan:
FCA Authorised Lenders
Be sure to only use payday loan lenders that are fully authorised by the FCA. You should be able to find the registration number on the lender’s website, but if you are unsure, you can check the details on the FCA register. This will ensure you only use lenders that follow FCA responsible lending guidelines and avoid unauthorised lenders who may charge additional up-front fees.
Choose The Most Affordable Repayment Term
Whilst you may be tempted to choose the maximum repayment term available for a smaller monthly repayment, keep in mind this can mean paying more interest overall. Choose the shortest repayment length you can afford to sustain – that way you can pay off the debt quicker and not hold for longer than necessary.
Check Your Income & Outgoings
If you apply for a payday loan without being fully aware of what you can afford, you may end up with a loan you can’t sustain. Lenders will check your affordability as part of their lending requirements, but you should still check this yourself before applying. That way, you’ll know how much you can comfortably afford without causing issues with other essential outgoings (rent/mortgage, utility bills etc.)
Be Careful of Using Credit Brokers
You may find a credit broker to help you choose from multiple lenders. Be sure to check whether they charge a broker or referral fee for their services, as whilst their service may appear free to use, this may be added to the loan you choose if you can, apply directly with a payday lender to avoid this potential fee.
So, with a bit of preparation, you can find a suitable lender and choose a payday loan that is affordable for you. Whilst it can be tempting to go for the first lender you find, take the time to compare your options and you’ll ensure that you are getting the best deal whilst resolving your short-term financial position.
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