Of all the loan products available in the UK, instant payday loans have seen the most growth in the last five years. Indeed, a recent report by Consumer Focus showed that the number of people taking out payday loans was four times higher in 2010 than it was in 2006, with over 1.2 million people making use of them for short-term borrowing. But while instant payday loans have received a lot of bad press as of late, the truth of the matter is that used correctly and with responsibility, they can be a good source of emergency cash to help cover unexpected costs until your wages arrive.
Say, for example, you're halfway through the month and something essential breaks down -- it might be your car, washing machine, computer and maybe even your boiler, which would be terrible during those cold winter months. If you're on a tight budget, then getting it fixed immediately might be impossible and that might cause problems depending on your circumstances. In these cases, an instant payday loan would be an ideal solution for covering the cost of repairs until the end of the month, at which point you can repay the loan and be back on an even keel.
The important thing with payday loans is that they have to be used responsibly. Since they're short-term loans for small amounts of cash (usually between £50 and £1,000), payday loans always have significantly higher interest rates than loans offered by banks to compensate. While these rates can often seem excessive, it's important to take it into context -- taking out £200 over a 30-day period might see you notch up an APR of anywhere up to 2,000%, but the actual amount of interest payable would only amount to between £15 and £30 due to the short-term nature of the loan.
The good news is that because payday loans are short-term and for small sums of money, they're usually easy to apply for (some don't even run credit checks that can hold up the application process) and the money can even be deposited in your account on the same day. Like all loans, however, the key to success with an instant payday loan is to not only ensure you can afford the repayments before you take the loan out, but also to find a lender that's reliable and trustworthy. Payday-style loans have opened the market up to many smaller companies and as such, it's difficult to know which are reputable and which aren't. In this case, it's definitely worth talking to a loan broker who has experience with these companies and can point you in the direction of the best one for what you need -- the safer you can make your payday loan, the better.
In Summary
Instant Payday Loans...
Have become increasingly popular across the UK in the last five years Are a quick source of cash for those looking to borrow small amounts Shouldn't be used as a long-term borrowing solution Often have a higher APR compared to more traditional loans Are easy to apply for and can sometimes be approved within minutes Can be a good solution providing you can definitely afford the repayments
Copyright: Individual Finance, 2010
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