Payday loans are a quick and easy way to get cash for people who need a short term loan. Popular Payday loan companies such as Wonga, Sunny, Quick Quid, Piggy Bank, Peachy, Pounds To Pocket and Payday UK offer small short terms loans. Typically, it’s possible to borrow between £100 and £2,500 from payday loan lenders. Payday loans companies are most commonly used by people with a bad credit rating who want to lend money without a credit check.
We would advise strongly against using Payday loans because of their high-interest rates. Even with the introduction of a payday loan interest cap, they are still very expensive and you may end up paying back double the amount you borrowed.
Payday loans should only be used as a last resort. There are payday loan alternatives and they’re usually much cheaper than taking out a payday loan.
What is a Payday Loan?
Payday loans are short term loans, usually between £100 and £1,000 but sometimes in excess of £2,500. Payday loans were created to help people suffering short term money problems – often due to unexpected bills – until their next payday.
Unexpected bills and emergency costs might include vehicle repairs, boiler repairs and replacing stolen work tools or household goods. For people who don't have the savings to cover unexpected bills and emergency costs, payday loans help people avoid having to wait until payday for urgent to pay for them and they're too urgent to wait until payday.
The payday loan company will usually take payment directly from your debit card on the same day your next salary payment. However, some payday loan lenders offer longer loan repayment periods of up to 6 months.
Why should I avoid Payday Loans?
The interest on a payday loan is the same as a year’s interest on a credit card. It’s a very expensive way to borrow money even over a short term. And, if you’re late with repayment or choose a longer repayment period you could end up paying double what you borrowed.
A payday loan could damage your credit score and make it more difficult or expensive to apply for future financial products and services. Even if you pay back the loan in the agreed repayment period, a mortgage company may look unfavourably at someone with a payday loan on their credit record.
If you apply for payday loans to help pay off debts from previous payday loans you may end in a situation where you can’t even afford the interest payments on your payday loans.
Payday Loan Alternatives
- Use an existing credit card
- Apply for a budgeting loan / crisis loan from Gov.uk
- Contact your local council and enquire about their financial support services
- Apply for a 0% credit credit. Even with a bad credit rating, it’s likely you’ll be able to get approved for a credit card. But expect higher APRs from poor credit score credit cards.
- Visit your local credit union
- Borrow money from friends and family
- Extend or apply for an overdraft on your bank account
Whatever you do, don’t borrow money from loan sharks. Payday loan companies are bad, but loan sharks can be much worse.