Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk. Representative example: £400 borrowed for 30 days.
Total amount repayable is £459.36. Interest charged is £59.36, interest rate 180.5% (variable). Representative 728.9% APR.
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Payday loans have had somewhat of a bad press in the past. When they were first introduced into the UK there were several horror stories in the press and may people who didn’t really understand what they were called for them to be banned outright. However, over the years the less reputable providers are now long gone and we’re left with a highly ethical and highly regulated payday loans industry in the UK.
However, some of these negative views about payday loans still exist so we’re going to take a look at just what payday loans are, who uses them and why they are more popular than ever.
What Is a Payday Loan?
Payday loans in the UK are typically loans of up to £500 that are repaid over a short term or until ‘payday’. Payday loans originally began in the United States of America but their popularity soon saw them come to the UK and they are now a permanent fixture in the UK financial services industry. Although they generally have much higher interest rates than a more conventional bank loan, payday lenders are more likely to loan to those people who have a poor credit score which means there is more risk. Therefore, this is countered with a higher interest rate.
Why Do Payday Loans Exist?
Quite simply, payday loans exist because there is a need and a desire for them. If nobody wanted to take out payday loans the payday loan companies would simply go out of business. In today’s society, where else can you get a short term loan to tide you over until payday? Where else can you get a short term injection of cash to cope with an urgent repair, accident or situation? Banks won’t lend such small amounts and applying for a credit card takes time because the card needs to be sent to the applicant. The applicant may also be declined their application based on their credit score. Quite simply, payday loans offer a vital source of finance for anyone in the UK who needs short term finance, regardless of their credit score.
Who Uses Payday Loans?
You may think that payday loans are used almost exclusively by those on lower incomes but you would be wrong. Of course, there are people on low incomes who use the services of payday lenders but middle income and higher earners also use payday loans. Whilst middle class workers may generally have higher incomes, they may also have higher outgoings and a sudden repair that needs doing may leave them with not enough savings to cover it. Payday loans offer a quick and easy way to access finance that they can repay soon after.
Payday Loans Are Not As Bad As People Say They Are
As you can see, payday loans are simply not as bad as people say they are. Payday loans are not some sort of financial product that people are forced to use, that they have no other choice to use. No, thousands of people use payday loans every year out of their own choice because they fulfill a need that other financial products simply cannot provide. Payday loans are:
They may not be for everyone, but they are a valuable and integral part of the UK’s financial services industry and will remain a popular financial product for a range of people from all sectors of society.