The recent news of short term cash lender Wonga’s security failings has put ‘payday’ loan companies in the spotlight once again. Wonga, who are one of the largest lenders of this kind, have previously enjoyed quite a good reputation, standing out within the industry for their open, fair deals and boasted an ‘ethical’ approach in an otherwise ethically ambiguous sea of legal loan sharks. Mystery surrounds these companies though, here I’ll look at 5 things everyone should know about payday loans:
Loans are fast but why and how?
The paperwork for same day online payday loans is simple and checks are minimal. However it is these benefits that allow fraudsters to get loans under other people’s names so easily. This should not necessarily be deterrent to making an application of your own though as the incidents of fraud at Wonga seem to have had little to do with whether you’ve ever had a loan from them. If you’re caught short you can have funds transferred to you instantly, solving your financial problems far more quickly than any other means could do. The danger here is that you may not think through all the repercussions of taking out and paying back the loan before you’ve applied and received the cash. The responsibility for this is entirely on you but if you’re desperate for money quickly there is a greater risk of pushing any cons to back of your mind.
You can get a loan even with a poor credit rating
One of the greatest advantages for anyone struggling to get a loan from a more traditional lender such as a bank is that even if your credit rating is poor or nonexistent that short term cash loans are available through lenders of this kind. Another advantage is that a short term loan can also be an effective method of boosting your credit rating as you’ll prove your ability to pay off a loan. However a subprime card may be a better, more reliable and less risky way to work on your credit rating. These are credit cards issued to customers with poor credit by specialist lenders. These have low limits and high interest but are a more long term solution to money shortages and repayments are more flexible.
A payday loan is cheaper than an unauthorised overdraft
A lot is said about the expense of payday loans but in fact if your only other option is to enter an unauthorised overdraft on your bank account then it is less expensive and harmful to request a sameday loan. To set up an ‘arranged’ overdraft which is fairly cheap you have to ask your bank who must be satisfied with your credit rating. If they’re unsatisfied you won’t be granted the overdraft. The amounts charged for an unauthorised overdraft from your bank reflect the fact that you’ve either bypassed or failed these checks and should be penalised for taking an unapproved loan. However as mentioned above payday lenders don’t require credit checks and despite their high APRs they can still be cheaper than the fines issued by your bank.
You must pay back quickly
The idea behind a payday loan is exactly as it sounds; a loan until payday. This should never be treated as a longer term loan and you should not attempt to borrow more than you can afford. Your latest payslip is usually required for an application but is not used to limit the amount you borrow. In addition it is possible, though not advisable, to take out a second loan from a different payday lender at the exact same time, thus far exceeding your future wage very quickly. However the limit on the period you can borrow for does have the advantage of putting an end to mounting interest costs.
You can make money from a payday loan
Some users of payday loans don’t need the money at all; they’re exploiting the rates for new users and the ‘introduce a friend’ incentives to actually make money. Many of these sameday online lenders wave the transmission fee (which is usually charged in addition to your loan) for new customers. What’s more they offer you money to refer your friends and family to the site. If you take the loan for just one day and pay it off without any extra fees then you can come out on top. As with any dealings you have with fast loan deals you need to read all the small print to make sure you will come away with more than you put in.