Payday loans should be used for emergencies and to cover shortfalls of cash. This type of finance is classified as high-cost short term loans and should not to be used as a long-term solution or to finance any ongoing expenses. To make sure that you use a payday loan
in the most effective way possible, here are a number of key things to consider before you apply.
Do I meet the criteria?
To be eligible for a payday loan, you need to meet the initial criteria. Whilst this varies from lender-to-lender, the common requirements are:
- Over 18 years of age
- Full-time UK resident
- Earning a regular monthly income
- Can afford monthly repayments on time
- Valid UK bank account
- Valid UK mobile phone number
- No recent IVAs, CCJs or bankruptcy (although this will vary amongst lenders)
Every lender wants to ensure that the individual can afford to repay their loan on time. This is because payday lenders are providing money upfront and want peace of mind that it will be repaid in full, including interest. In addition, the provider does not want to put the customer into financial difficulty and making sure that they are based in the UK and have a regular income is key to achieving this.
Will an application impact my credit rating?
During the application process, usually the lender will run a soft credit check against your name to determine your eligibility for a loan and provide you a loan quote. This leaves a ‘search footprint’ on your credit file for a period of 12 months and is used as a reference for any future lenders - but it is not likely to have any negative impact on your credit score. However, this soft search will become normal credit check (visible on your credit history) when you agree and enter into a loan agreement and is likely to impact your credit rating.
It should also be noted that making a number of payday loan applications in a short space of time may have a negative impact on your credit score because it may suggest a dependency or desperate need for high cost loans.
How much you need to borrow
Payday loans range from £50 to £2,000 and at Fund Ourselves, we offer loans from £100 to £1,500. Whilst payday loans are typically used to pay any pressing bills or emergencies, it is important to consider how much you need to borrow.
The average customer may try to apply for the maximum amount and borrow £500
, however, this may actually put them under greater pressure to repay the full loan and interest on time.
Make sure you calculate how much you need to pay for your pressing bill or expense and avoid borrowing more than necessary.
Can you afford repayments?
Before you apply, you need to check the representative example or the loan repayments which is provided in an online agreement from your lender.
If you cannot afford your monthly repayments, there can be implications such as late fees, added interest and a negative impact to your credit rating.
It is important to consider how you plan to make your repayments, whether this is from next month’s income, potential sales commission or bonus.
Have you considered alternatives?
Whilst payday loans can provide an important injection of cash during times of emergencies and other expenses, there are other low cost options available.
Consider borrowing from a family member or friend, since this is usually interest-free and does not come with any potential damage to your credit score.
Or consider using a credit union, which offers very low cost loans to its members and people in the local area. The application may take a little longer to process and funds may take time to be approved, but the rates are often much lower and come with no late fees.
The implications of non-repayment
Importantly, you should consider what happens if you cannot repay your loan on time. It is essential to know that the cost of a payday loan may increase if you do not pay on time - through default fees, late fees and daily interest added for every day the loan remains outstanding.
Failure to pay may also have a negative impact on your credit score and this will affect your ability to access other forms of finance in the future such as credit cards and personal loans
If you think that you are not going to be able to make an upcoming payment, it is vital to contact your lender as early as possible. They should be able to offer you forbearance and this might include freezing interest or offering a payment plan that extends repayment for longer and charges no extra fees.
At Fund Ourselves, we are very committed to helping customers who may be experiencing financial difficulties. We do not charge any late fees, our customer services will be happy to discuss options to help you repay the amount outstanding and may offer more time to spread the instalments subject to further interest.