What is a payday loan?
Payday Loan is a term commonly used to describe high cost short term finance that is repaid on or around your next payday.
How do payday loans work?
If you've applied for a payday loan and been accepted, the lender will deposit funds directly into your bank account. Payout times vary from lender to lender but cash can be in your account within 15 minutes.
You will be required to repay the loan in accordance to your agreement. This could be in one instalment on or around your next payday or in multiple instalments spread over a number of weeks or months.
As a minimum you'll be expected to be at least 18 years old and be able to demonstrate you can afforrd to repay the loan. Each provider will have differing acceptance criteria so be sure to do your research before you apply. Failing to match the lenders criteria will almost certainly result in you being declined. You can find in-depth information on every UK payday lender and their minimum requirements in our payday loans product library.
Will I be credit checked?
Yes, when applying for a payday loan you'll be subject to a credit check. This will show up on your credit file regardless, whether you're accepted or declined and will impact your financial decisions for years to come. It's therefore vital to compare your options before you apply in order to ensure you apply to a lender that suits your requirements. Using the Choose Wisely Eligibility Checker is free, won't affect your credit file and will provide you with suitable lenders to compare:
Rates as high as 1500% APR
You’re not wrong to be shocked - an APR of 1500% is by no means small, but contrary to some beliefs you will never pay this amount in interest. in January of 2015 the FCA (Financial Conduct Authority, the financial regulator) implemented caps on what payday lenders could charge customers, both for their loans and for late payment. Interest is capped at 0.8% interest per day or 100% of the total amount borrowed. Default fees are capped at £15.
So for example. If you borrow £200, the maximum you can be charged in interest is £200.
Do I actually need a payday loan?
Firstly, if you think there's even a tiny chance you won’t be able to repay the loan in full when it’s due, don't apply. It's just common sense. Secondly, really consider what you need the loan for. Payday loans are designed as a last resort in an emergency. They're not suitable for long term or sustained borrowing. If you're struggling to keep up with essentials such as food, rent and bills a payday loan is not the answer. If this is the case seek help from a debt help charity like those listed in our guide below . There is a solution to the problem you find yourself in and a debt charity will be able to help you, for free. You can find more information on where you can turn in our guide to managing your debt.
Alternatives to a payday loan
If you're looking to borrow and repay over a short period of time there are alternatives to using a loan. A credit card provides a valid alternative as settling your balance in full each month will mean you won't pay any interest. This will require you to be disciplined in order to stay on top of your balance but in return, you'll receive a considerably cheaper form of short-term borrowing. The key with using a credit card is not to get into the habit of only making the minimum payments each month as over time you’ll end up paying a lot in interest.
Considering a credit card? Compare your options using our credit card comparison table .
Another option if you need cash fast is to ask friends or family. Although this isn't always straightforward it can be a much cheaper option than borrowing from a commercial lender. Before you go ahead just be sure to plan out your repayments and discuss what would happen if things don't go to plan.
Payday loans have their place, but make sure it’s the best option for you. For the sake of maybe a few hours of research online, you could save yourself hundreds of pounds, and a whole lot of stress.
For those of you who are sure that it’s the right option then the table above is a great place to compare payday loans.