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In recent years payday loans, also known as cash advance loans, has spread widely in the United Kingdom, with millions of people benefiting from it since 2006.

Payday loans are short-term loans, designed to help people facing an emergency financial issue. Those loans are supposed to be repaid by the end of the month, when you finally get your paycheck.

In essence, this could be helpful in case of facing an emergency or any sort of sticky situation, and you’re short on cash. You may have forgotten about your monthly installments for an item you purchased on credit, and you have to pay before due date to avoid paying penalty. Or in case you find yourself in a situation where you or a member of your family encountered a health problem. Or your oven broke and you don’t have enough money to repair it or fix it!
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As payday loans offer a small amount of money, for a short period of time, often 2-3 weeks or until your pay check. These loans are available online or from high street shops, although you will have to check different companies before you take that step; to compare different interest rates and different terms and conditions. You have to make sure to choose the company that is suitable for you situation, or what you can handle. Not to find yourself stuck with higher interest rate than what you have expected, and delay penalties more than what you can afford.

Unfortunately, A payday loan tend to be very expensive, as the responsible companies also have to pay different costs to make the  transaction happen, and balance the risk from lending small amount of money for a short period.

However lets assume you have no choice and you are in the middle of an emergency situation. In that case, checking payday loan companies and deciding to take out a payday loan can be a life-safer!

There is a number of companies in the UK that can provide you a payday loan, and their transactions are regulated by FCA “Financial Conduct Authority”. You have to make sure that the company you choose to deal with appears on the official FCA register; to secure your financial agreement.

Choosing a payday loan company in the UK

If you are facing an emergency and taking a payday loan your best resort, then there are some details you should keep an eye on:

  • You have to ensure that you are dealing with an actual lender; some online companies trick you in to thinking that they offer a payday loan themselves, whereas they sell your information to the highest bidder. These companies are not direct lenders, they are just broker companies that provide loans. So make sure to do your research, to avoid getting swindled!
  • Check if the FCA authorized this specific payday loan company, through checking for their registration number on their website.
  • Find out if the payday loan company that you choose to deal with has the Consumer Finance Association (CFA) logo, and the Credit Industry Fraud Avoidance System (CIFAS) logo on their website. As being an active member in these two organizations means that they follow the industry’s best practice, which gives you an extra layer of security.
  • Make sure to check the company’s privacy policy, to ensure that your personal info isn’t being leaked
  • Moreover, it is always more safe to find the company’ physical address stated on their website.

How to apply for payday loan in the UK

If you choose to secure your financial needs by taking a payday loan, then you have to provide some sort of documentation to the lending company that proves your ability to repay your loan.

First of all, you will have to fill an application with your personal information such as birth date, address and annual income. You have to provide the payday loan company with documents that prove your monthly income, such as pay slips from your employer or recent bank statements that shows your income. Some companies may ask for your bank account as an additional security step.

Secondly, you will also have to provide appropriate personal identification such as ID card or driver’s license; proving that you live in the place where you are getting your loan.

Some payday loan companies may ask for a blank check, to ensure that you will pay your loan back in time.

Getting hold of a payday loan

Payday loans companies provide fast onsite or online application and approval, that’s because of the nature of this loans.

After applying for the payday loan and proving your solid financial status, lenders will determine the maximum amount that you are eligible to. This amount is determined as a percentage of your short-term income. Some payday loan companies uses your monthly salary as a guarantee for repaying.

Most of the time your credit rating will influence the loan amount and period, if you have low credit rating your credibility will decrease, leading to a lower loan amount and an increased interest rate, and vice versa. Your credit history affects your credit rating, so if you missed an installment in the past or repaid a previous loan after due date, it will be obvious that your credit history is murky, affecting your credit rating.

If you managed to pass the former steps and provided solid proof that you can repay your loan, the lender company will transfer the loan to your bank account directly. Consequently, you will be able to use it immediately in whatever emergency you are in at that time. You can fix or replace that broken fridge, or provide medical treatment to your beloved family member, the choice is all yours.

You will have to repay your payday loan when you receive your wadges and if you choose to go with short-term loan which is also typically a small amount of money you will need t pays back approximately one third of the amount plus interest.

In case you needed a bigger loan, and you are not able to repay at one go when you receive your wadges you can apply for a personal loan that you can repay in monthly installments.

Either way, both short-term loans and personal loans can be high in cost. Think twice before determining if the payday loan is the best option for you. Although payday loans cost has a limit under the FCA rules, the average annual percentage interest rate (APR) could be way higher than APR for an average credit card.

The cost of payday loan includes the interest rate you will have to pay, plus the fees the payday loan company will charge you for your loan.

According to FCA regulations, you can be charged a maximum of £24 for every £100 you borrow and penalty fees cannot exceed £15 in case of delayed repayment (plus interest for that extra period).

Moreover, according to the FCA regulations, payday loans have an overall limit, which means that you will not pay more than twice what you had already borrowed in the first place.

As the name imply, the payday loans have to be paid on payday. Although in some cases, you have to know all about the repayment options. Some payday loan companies could let you choose the repayment day. In other cases, you could fall in the trap of paying early, as some companies ask for extra fees for doing so.

Repaying your payday loan

In most cases, the payday loan company will ask you to sign an agreement, allowing them to take their money back from your bank account whenever they wish, even if you had that money in your bank account for more important bills to pay. This process is called continuous payment authority (CPA), and is done through your bank debit card.

You could add more cost to your loan, if your bank account doesn’t have enough money, as you will end up paying extra charges. In case the lending company couldn’t get the money twice while using continuous payment authority, they shouldn’t use it further.

Extending your Payday loan

So what if you are facing unexpected financial difficulty and you can’t afford to repay your payday loan on time? In that case you can ask the lending company to push back your repayment date, or you could be offered a loan rollover.

A loan rollover will allow you to make a new agreement with the payday loan company to repay the initial loan. This lending company can’t roll your loan over more than twice, and they have to give you an information sheet about free debt advice providers.

Another option if you have trouble repaying on time, is that you could be offered another loan by the lending company.

You have to be careful though, as by extending your loan or agreeing on a rollover will cost you extra interest, fees and extra charges. And you will end up struggling with more than you expected in the first place.

Disadvantage of a payday loan

  • Expensive than other borrowing options: payday loan comes with high cost including high interest rate that can be ten times more than the interest on regular credit cards, as they can charge you for a month more than what a credit card will charge for a year. In addition, you will have to pay fees and borrowing charges. And in case you missed your repayment period, you will pay penalties and extra interest for the delay period.
  • You may be stuck in a debt cycle in case you miss your due date: by falling to repay your loan in time, you may find yourself forced to extend your loan or roll it over. That means that you will end up adding to the original cost, as a consequence you could find yourself in high debt you are not prepared to deal with.
    also using payday loan as a way to secure your basic monthly cost regularly could be a great problem.
  • Falling for some payday loan companies deception: some payday loans could publish deceptive information about their business, which makes them less secure to deal with or to defend yourself legally against them. Moreover, some companies claims that they are payday loan companies, while in fact they are just service providers, who sell your information to the highest bidder. Which interdict your right to choose the best company for you.
  • Try to avoid long-term payday loans: some payday loan companies offer the option to repay over a longer period of time that can go up to three month, but that increases the interest load.
  • Payday loan companies will try to make you borrow more than once.

Advantages of payday loans

  • Can help you in emergency situations: payday loans could be your only hope when facing a financial emergency and there is nowhere else to go until your paycheck. It’s a good option for short term loans.
  • You can get a payday loan with no hassle: you don’t need to have a credit card to obtain a payday loan, you can just apply with your ID or driver’s license, and provide a proof of your income.
  • Payday loans are convenient and fast to obtain: you can apply for a payday loan online and the money will be transformed to your bank account within a day, you won’t need to fill paperwork like traditional loans, and you don’t have to wait long.

Payday loans could be an appealing option for many reasons, but you have to be careful what you wish for. Do your research and choose a payday loan company wisely, not to fall for scammers.

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