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The Pros and Cons of Payday Loans

Despite the bad raps on payday loans in recent years, there is no denying that the short term financing scheme has been providing quick and easy solutions to millions of employees in UK. Between 2006 and 2009, the number of borrowers had quadrupled indicating an increasing need for accessible loan alternatives. In 2009, the payday loan industry has loaned a total of £4.1 million to 1.2 million people. The average amount borrowed is at £300 and majority of borrowers are earning an income of below £2,000 per month.

Regardless of the negativity, the payday loan market is projected to continually expand and grow in the coming years. With turbulent economic times to deal with, people will always need quick cash from time to time. However, with the loan’s advantages also come drawbacks that every borrower should be aware about.

What are the Pros?

  1. Getting a payday loan is fast, quick and convenient. The application process is often completed in a few minutes and processing is almost always done within the same day. Best of all, the money is send to your account on the same day as well.
  2. Payday loans require minimal requirements. You just need to be of legal age, a UK resident and a regular employee in order to get approved.
  3. There are no hassles of credit checks. Even if you have a long history of bad credit, you still have a chance with payday loans.
  4. The loan amount maybe smaller compared with other types of personal loans offering only a standard £100 to £1000 but unlike other loan types, the terms are also shorter – 14, 21 or 28 days. This means that borrowers can easily get out of debt as soon as the next payday comes.
  5. Just like with other loans that are not borrowed from banks, payday loans come with high interest rates. The APR, on average, is at about 1,700% and it can go up depending on the lender's schemes.
  6. Failure to make payments on your due date can mean higher interest rates that you need to shoulder for the next payday.

What are the Cons?

  1. Just like with other loans that are not borrowed from banks, payday loans come with high interest rates. The APR, on average, is at about 1,700% and it can go up depending on the lender's schemes.
  2. Failure to make payments on your due date can mean higher interest rates that you need to shoulder for the next payday.

Why the High Interest Rates?

If you’ve ever wondered why payday loans charge high interest rates, it is to compensate for the risk of taking you on for loan. After all, there is no checking of credit history or rating involved when approving your application.

In addition to knowing the pros and cons, it is also important to compare payday loans with other alternatives such as guarantor loans and logbook loans. Both loans are also available in UK and if you want to know more information about them, you may go Independent’s website by clicking here.

In the end, the goal of personal loans such as payday loans is to provide you with a quick fix to immediate financial concerns. And the key to making the most of each loan is to borrow with caution and pay on time to avoid paying high interest rates.