The attendant tells you that the process will cost £1500. Usually, this amount would be manageable, but this month you’ve had to pay for a trip and your income tax. So, what do you do now? You suddenly remember the advertisement you saw for quick cash. You look it up and get an option to receive no credit check payday loans online. You apply for it and voila – the money is in your account within 24 hours.
Payday Loans Get Money Quickly And Easily
Quite convenient, isn’t it? Well, this convenience comes with a lot of terms and conditions. Let’s look at precisely what payday loans are and how they work to understand this better.
Defining Payday Loans
It is a short-term loan that comes with high-interest credit based on your income and credit profile. The loan amounts range from £50 to £3000 and can help you take care of life’s little emergencies.
Payday loans often don’t require any collateral and are available to people with low credit scores as well. Therefore, you may want to look at other- safer- options first.
Obtaining Payday Loans
Small credit merchants usually offer payday loans with physical locations. You can visit them and receive your credit immediately.
To apply for a payday loan, you must provide salary slips from your employer. Other factors that could affect your payday loan terms are your credit score and history.
If you don’t know your credit score, there are many sites online that will calculate it for you. Simply open these sites, provide the details asked for, and click on the ‘calculate my credit score button.
Payday Loan Interest
Although the fees and interest on a payday loan are usually transparent, they are also very high. Moreover, the amount could increase even more, based on how long the investment remains unpaid.
While APRs usually seem more expensive, flat interest rates often cost you more money. APRs, meanwhile, are calculated based on the amount of leftover to be paid.
The worst part of a payday loan, though, is that payday lenders have a reputation for poor practice. They often resort to harsh tactics to get the money back. Additionally, they also hard-sell their products leading to many people being repeat customers, despite not being able to afford it.
It is worth noting here that due to the unfortunate practice by payday lenders, the FDA has put some severe restrictions on payday loans. They have capped the interest and fees. On top of this, they have ensured that the total cost of a payday loan would not be more than 100% of the principal amount.
Defaulting Payday Loans
Defaulting a payday loan comes with some severe consequences. Let’s look at a few of the most important ones:
1. Additional Fees and Interest
When you default a payday loan, you may end up having to pay an additional fee called a Non-Sufficient Fee (NSF). The amount would vary depending on your location and lender. Read the fine print in your agreement to know exactly how much it costs to default the loan.
2. Debt Collection Activity
If you don’t pay your lender back within the decided time frame, they may go to a third-party debt collection agency. In this case, you will receive continuous calls, letters, and emails until they receive the money. You may find their methods more aggressive than those of your lenders.
3. Damaged Credit Score
A damaged credit score is one of the most severe consequences of defaulting a payday loan. It goes into your credit history for up to seven years. This may affect your access to financing in the future as well.
4. Court Summons
Defaulting on even a small amount leads to a chance for a court summons from the lenders or the debt collection agency. This could have consequences in the form of the seizing of your property or even wage reduction.
5. Arrest Threats
Though arrest threats for defaulting a loan are illegal, you may still receive one from your lender or the debt collection agency.
Payday Loan Alternatives
Credit unions, bank overdrafts, credit cards, and informal borrowing from family and friends are all great alternatives to payday loans. Some of these may be cheaper than payday loans as well. The cost will depend on how the fees and interest are calculated.
Additionally, specific organizations offer their members pre-approved loans at no interest. You only have to repay the principal amount and a small monthly membership fee. The amount to be returned is calculated as an APR.
Though the short-term loan increases the APR, customers won’t be stuck in debt for a long time. Moreover, their loans are an excellent way to improve your credit score.
Comparing Payday Loans
You can compare lenders and the charges they ask for online using comparison websites. At the same time, remember to calculate an estimate of your repayment amount before applying for any loan.