Everything there is to know about a payday loan

Payday loans were created for people with financial emergencies.  It is an instant way to get money when you need it. In case you have been involved in an accident, or have some bill you need to pay for immediately you can take up a payday loan. The loan is paid back plus full interest when you get your salary or before the repayment timeline expires.  People have been using this service for non-financial emergencies without knowing the repercussions they may face.

Before you borrow some money, here are a few tips on payday loan

This is how payday loans work

Payday loans are short term loans introduced by lenders to help people with small financial issues until their next payday. When you make an application, the lenders approve it and send the money directly into your bank account where you can access and withdraw at your own will.

Payday loans can last from 2 weeks to three months or longer.  The most common pay day loan package is the one month package where you repay the loan at the end of the month, when you receive your paycheck.

What will a payday loan cost you?

There is a limit to the amount of interest rates you can pay for a payday loan. The financial conduct authority has an interest limit for 24% for anyone taking a 30 day loan. Lenders must comply to this policy. they can charge you anywhere between 1% and 24% interest depending on the amount of loan and their terms and conditions

The recurring payments in payday loans

Before you agree to take up a payday loan, you should set up a recurring payment. it always the lender to take the agreed amount directly from your bank account to cover the loan repayments.  The money is deducted even before you have access to your paycheck. This can be dangerous when you have other monthly commitments.  The payments may not leave you with enough money to cover your remaining monthly bills such as mortgages, and other monthly bills.

Avoid payday loan traps

If you have trouble making your payday loan payments, the lender may offer you an extension. The extensions, referred to as a rollover or further loan may seem like a good option at the time, but can lead to many financial problems. The interest rates on a rollover are far much more than the normal rates on your payday loans.  There is a limit to the number of times the lenders can roll over the loan, and each time there is a further increase in interest rates. In the end, you will end up paying much more than you borrowed

Payday loans and credit cards

Your payday loan does not appear on your credit card, but somehow it will affect your credit card status. When you take up a payday loan, the information reflects on your bank statement which is accessible by some credit owners. If you make late payments, it will affect your credit negatively by lowering your credit score.

Final word

Ensure you understand all the up’s and down’s pertaining to payday loans before you take up a loan. Payday loans may be easy to obtain, but it s advisable to apply when it is absolutely necessary.


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