Three Things to Do Before Applying for A Payday Loan

If you find yourself in a financial bind, a payday loan could be the ultimate solution to your woes. Payday loans are accessible and easier to obtain than any other loan product and are lifesavers when people face certain unforeseen circumstances or financial emergencies. The online application process is relatively straightforward and short, and lenders tend to make the funds available promptly, what could take a couple of days is only a matter of a couple of hours in this case.

Now that customers can conduct the entire transaction online, you could secure a payday loan without even leaving the comfort of your home from lenders like MoneyBoat. This has been a welcome prospect during the COVID-19 pandemic. The online lending market is growing and is quite strongly competitive with various lenders offering various interest rates, and it is advised to take some time off to look around to find the best one. But even before this and before you commit to a payday loan, here is some information you should have:

1. Understand the product


Many people see instant payday loans as a quick fix for a financial crisis, which is exactly what they are. However, borrowers are often too consumed by getting their hands on the funds they need to give due consideration to any commitments they are undertaking. Therefore, consumers must understand what a payday loan is.

Payday loans are short-term loans that last only a few weeks or until you get your next salary or benefits credit. Upon receiving the money, the expectation is that you will repay this loan in full together with any interest owed. Many lenders offer longer repayment terms for significant loan amounts, but these rarely last beyond three months. The maximum of three months repayment option is not for everyone and strictly depends on the amount of the loan lent. If the loan amount that people have taken exceeds the amount the lender has prescribed then this alternative is a possibility.

Payday loans are unsecured, meaning that you do not offer assets as collateral to get them. The interest rates on unsecured loans tend to be higher than their secured counterparts. Interest rates also climb depending on the repayment period. Therefore, the rate on a payday loan is greater than that on an unsecured personal loan with a minimum one-year repayment period.

Non-payment results in additional interest charged for each day that you fail to settle your loan. This interest is not only charged on the loan amount but rather on the entire outstanding balance. An unpaid payday loan can spiral out of control, snowballing into an amount more than double the initial loan. Hence you must be sure that you can meet your repayment commitment before signing any agreements.

2. Understand the criteria


All payday lenders have criteria that borrowers must meet as stipulated by laws that govern the industry. For example, you must be of legal age to enter contracts such as that with a payday lender. Payday lenders can only lend funds to UK citizens, so you will also need to provide evidence of that. Using your passport as proof kills these two proverbial birds with one stone.

Payday lenders run prospective borrowers through an affordability check to ensure a realistic chance of recovering their money from you. This requires the provision of evidence of income, which could take the form of salary advice slips, a letter of employment, or a benefits statement.

Just like your financial situation, the services offered by some lending companies tend to unique and diverse. For instance, certain payday lenders may require more information in an application than others do. You might get asked about your monthly expenses, especially if you are borrowing a substantial sum of money or there might be a question on what the money is for. These affordability checks also work in your favour and are designed to ensure that lenders do not offer you loans that you have no real chance of being able to repay.

Another requirement is that borrowers have a UK bank account, as this is where the lender deposits your loan. Any lender that offers you cash is likely not operating above board. This is called loan sharking, and such operations are usually run by shady characters who have no problem resorting to threats, intimidation, and violence to get their money back.

You will also have to supply the lender with a valid email address and UK mobile phone number. This allows the lender to verify your identity and avoid fraudulent transactions. It also gives them methods to contact you should you default on the loan.

3. Understand your rights and responsibilities


Lenders have several legal obligations when offering loans. Among those is that payday loan lenders are obligated to provide you with a binding contract that stipulates the loan terms and conditions of your agreement. However, they will not go as far as ensuring that you understand the fine print. That is your responsibility as a consumer.

It is not that easy to claim that you did not understand the terms and conditions of a contract after you signed it. Therefore, ensure that you go through the entire agreement before signing it. If anything in this document is unclear or bothering you, seek clarification from your lender or ask someone you know for advice. No matter how small that something is it’s better to seek clarification before committing to such a serious deal.

Few borrowers know that there is a 14-day cooling-off period during which they can return the money with any outstanding interest and be released from the agreement. If you change your mind, take advantage of this opportunity within the stipulated time.

Upon signing a payday loan contract, you acknowledge liability for the loan and accept the interest rate offered and planned repayment period. While consumers have rights that need to be protected, they also have a responsibility to only enter into a loan agreement if they can afford to repay it.