Cashfloat's Payday Loans

‘A payday loan is a relatively small amount of money lent at a high-interest rate on the agreement that it will be repaid when the borrower receives their next wages’ (Oxford dictionary). Payday loans tend to be between £100 and £1,000, with average APRs of over 400%. They are paid in instalments on the borrower’s salary day.

You should use payday loans for urgent but temporary cash-flow problems, such as if you:

• receive a one-off reduced salary, 
• need to pay an urgent bill or an overdue debt
• need extra income during holiday seasons, 
• must cover an emergency medical bill. 

You should never use payday loans to pay for recurring bills (like utilities or your rent/mortgage), to pay for luxury items, or non-essential expenses. Other common reasons people use payday loans when they shouldn’t are:

• When made redundant. Instead, you should seek help from your local Jobseeker’s Centre and look into a government allowance.
• To pay off other debts. It rarely makes sense to pay off other debt with a payday loan as the interest rate is so high. Instead, look into a debt consolidation loan. 
• To pay your overdraft. Once in a while, it can be OK to cover your overdraft with a loan, but if this is constantly happening, you should cancel your overdraft to make it impossible to go overdrawn.

1. If you’re unemployed or on benefits. Lenders will decline your application if you have no income from a steady salary or if you rely solely on benefits.
2. You are not paying your current credit commitments. Some lenders will accept people with a bad credit history, but not many will accept someone who is not paying their current credit commitments.
3. You’re borrowing lots of payday loans. Payday loans are heavily regulated, and lenders will be very cautious not to lend to someone who has too many payday loans.
4. You’re gambling.

Banning payday loans does not always have a purely positive effect (as seen from studies on the 12 USA states where payday loans are prohibited). For people who need them and use them responsibly – two-thirds of borrowers based on our statistics – they are a valuable financial tool. Banning payday loans will remove this buffer that can help people avoid expensive overdraft or bounced cheque fees and help them cover emergency expenses.

People may be driven to loan sharks without payday loans – a far worse option. So, instead of banning them, the Financial Conduct Authority has decided to regulate the industry. 

Unless they charge high-interest rates, payday loan companies wouldn’t be profitable and would be unable to offer their services to the public. After all, with the current FCA interest cap in place, they only make £24 per £100 borrowed over 30 days. If they charged the same rates as long-term loans, they wouldn’t be able to help people who rely on payday loans for emergencies.

If you can meet the lender’s requirements, personal loans will always allow you to borrow more money at once than any payday loan. They also go over the limit of many credit cards and overdrafts. Also, the loan repayments are typically in fixed monthly sums, making your repayments much easier to budget. Payday loans are easier to get approved for and can be in your account in mere hours. However, you can only borrow smaller amounts, and your debt can snowball if you cannot keep on top of the repayments.

Payday loans differ from bank loans in that they are much quicker to apply for and the money will be in your account faster. However, payday loans come in much smaller amounts than bank loans, and also have very high interest rates. If you’re not pressed for time and just need a small amount to tide you over until payday, a small payday loan could be just right for you. Bank loans, on the other hand, are better for people who need to borrow more money. Many people take this kind of loan for improving their assets and consolidating existing debts.