In difficult economic circumstances, few people have enough savings to draw on in an emergency. Many turn to personal loans to help them out. These short-term loans tend to have a higher interest rate than longer-term options, such as mortgages. However, they are repaid over a shorter period, freeing you from debt sooner than other options.
Payday loans are a popular loan product among many people who need extra cash to cover unexpected expenses and will have sufficient funds to pay off that debt once they get their monthly income.
If you are thinking about taking out a personal loan, here are some frequently asked questions (FAQ) and answers that might interest you:
What is a payday loan?
A personal loan is a short-term financial product. From its name, you can deduce that a personal loan must be repaid in a few weeks. However, some options allow you to repay these loans in installments. Interest is attached to payday loans, and you’ll pay more the longer it takes to settle the debt.
Payday loans are not products sold by banks. Instead, private lenders offer such loans. Given the current circumstances with COVID-19 and subsequent lockdowns, many have found themselves in need of such borrowing opportunities.
Fortunately, they can ask payday loans online, which are approved without requiring in-person contact. Most lenders have moved their businesses online because it frees them from having to open branches and pay for renting office space.
How to apply for a personal loan?
One of the many things that attract consumers to payday loans is that the application process is quick and simple. Lenders are also responsive and borrowers could have their money in less than an hour.
Online applications are easy to complete, provided you do so in full. There is little paperwork to get a payday loan. The few forms you need must be completed in full. An application could be refused due to incomplete forms, unnecessarily prolonging the process of obtaining a loan.
Some information you should have on hand includes proof of income, address, and identity. You can submit all forms and documents from the comfort of your home if you opt for an online payday loan.
Can you get a payday loan with a low credit score?
Your credit score is not as important in determining the success of your payday loan application as it is for a more traditional personal loan from a bank. The companies that provide these loans do not place as much importance on credit ratings as other financial institutions.
Applicants who have had difficulty obtaining conventional loans have found that payday lenders are not as strict as banks. Therefore, if you have a less than stellar credit score, you are still likely to get approved for a payday loan.
What are the terms of a personal loan?
A payday loan works much the same as a traditional personal loan. Interest is charged on the amount borrowed, and there is a fixed term to repay it with the principal loan amount. Interest rates vary from lender to lender. Before committing to a lending company, shop around to make sure you get the best interest rate possible. This will reduce your refunds.
The number of installments you will have to pay will be different depending on the agreement signed with the lender. Payday lenders do not offer installments on small loans of less than a few thousand pounds. These amounts must be repaid in a single payment in the weeks following receipt of your salary.
If you opt for a larger loan and repay it in installments, there will be a series of weekly, fortnightly or monthly repayments. Make sure you have an explicit agreement that stipulates the frequency and value of repayments when you enter into a contract with the lender.
How much can you borrow and what should you use the money for?
Typically, payday lenders offer loans ranging from a few hundred pounds to around five thousand pounds. Request the amount you need. The lender assesses the amount you are requesting against your proof of income.
This determines whether you are likely to repay the borrowed amount. If a lender feels that you are not earning enough to make repayments, they may offer to lend you a lesser amount.
After receiving your salary, you can use the money at your discretion. Nevertheless, do it knowing that it must be repaid. Although loans can help you out of a difficult situation, they should not be used without careful consideration. If there’s an expense that can wait until the end of the month or if you’ve saved enough money, there’s really no need to go into debt.
(Disclaimer: Devdiscourse journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse claims no responsibility for them.)