Payday loans are disappearing. A few lenders are out there offering these loans; however, they might be using other names. In times gone by, payday lenders received a barrage of backlash for using unethical practices that led the FCA to intervene, which, upon the investigation of an inordinate number of complaints, found that the accusations were irrefutable. The new regulations were imposed to protect the rights of credulous borrowers.

That left an ingrained mark on people’s minds, and ever since, the demand for payday loans began to decline. Fortunately, there were lenders who continued the practice under new regulations to help borrowers borrow money when they were caught on the wrong foot by the unexpected.

Payday loans are a regular form of borrowing, but you should know how much money you will be borrowing and when you will have to pay back it.

What makes payday loans unique despite high interest rates

It can be hard to identify the benefits of payday loans because they are infamous for charging high interest rates, but these loans can be very useful in some cases.

• Suitable for bad credit people

Have you got your credit score less than perfect? Banks will not sign off on your application because your credit rating is not up to snuff, and they do not offer a very small loan. As a result, you have no alternative other than small loan lenders.

Your lender will run an affordability check. Most lenders run soft inquiries. An affordability check is compulsory to ensure you are not lent more than your affordability. You are presumed to be a risky borrower. The risk involved in loaning you is compensated by high interest rates.

• This can be applied by the unemployed

You might be eased out of your job at any time. Not until you land a new job will you be living off savings. Despite receiving unemployment benefits, it can be hard to stretch your money. You will find yourself cash-strapped when an emergency pops up.

Thankfully, some lenders provide payday loans for the unemployed. Unemployment benefits will be regarded as your income. A side gig such as a rental income, dividends or any other income can also be used to qualify for these loans. Loans for the unemployed are similar to other small loans. You will have to clear the debt in one go, but a few lenders may let you pay it back in weekly instalments. Look for lenders who provide instalment repayment plans.

• Easy to manage

You can pick the sum of money you want to borrow; however, make sure you borrow according to your needs. Provide accurate details of your income and expenses in the application form. You will be sent an agreement online to accept the terms and conditions.

The agreement will disclose the details about interest rates, late payment fees and associated charges. You know how much amount you pay and when, which makes such loans quite manageable.

• Early repayments can save money

This facility is allowed only if you have an instalment repayment plan. An early settlement will cost you early repayment charges, but you will still save a lot of money in total interest. Your loan agreement will have details about your early settlement fees. Some lenders do not allow it because of their small size, even if they are to be paid back in instalments.

• Quick money disbursal

You will need an instant injection of cash if your car is out of whack or your tumble dryer is acting up. Lenders will quickly assess your financial details and run an affordability check. Once it is done, money will be transferred to your bank account. The whole process takes a few hours to complete. Urgent same-day loans are a great choice for meeting unforeseen expenses.  

• Cheaper alternative

Payday loans carry high interest rates, yet they are more affordable than credit cards. If you fail to pay off your credit card debt on time, interest will accrue by the day. Credit cards carry higher interest rates. In case you are struggling to pay the balance off, you can use payday loans. They will help save you money on interest payments.

• Help build your credit score

Payday loans are normally paid back in a lump sum, and therefore, they do not play a major role in fixing your credit health, but despite that, they help you with it indirectly.

• Loans that are to be paid back over a period of months can improve your credit score.
• Lenders will see a credit mix to determine your credit health. Having only one type of loan, such as a credit card debt, will take you nowhere. You will have to show that you can manage multiple types of debts.

A good credit rating will help you borrow money at affordable interest rates down the line. However, it will take a lot of time to fix your credit issues.

• Round-the-clock service

Most payday lenders provide round-the-clock service. It helps you contact and ask them any questions related to the loan. Online support can help you get answers to most of your queries. You should take advantage of customer support to ensure that you are borrowing the right loan. You should have no qualms about anything at the time of taking out a loan.

• Caps on interest rates are strictly followed

The FCA has imposed a rule that no lender can charge more than 0.8% per day. The following table illustrates this point in a better way.

Loan amount	£100
Interest rate	0.8% per day
Repayment period	14 days
Total interest payment	£111.2
APR	292% (0.8×365)

It is vital to remember that the annual percentage rate includes both interest rates and fees. Along with fees, the annual rates go up to 521%. However, some lenders may charge even more than that.

Payday loans might seem very affordable if you clear the debt within two weeks, but if you roll over the debt for a full year, you will end up paying £392, excluding all fees and charges. You should carefully assess your repaying capacity.

• You have control over the loan

You are completely free to choose the amount of money you want. It is not recommended to borrow more than you can afford to pay back. Provide accurate details of your income and expenses because your lender will check your affordability based only on that information.

They would want to know whether you are left with enough money to repay the debt after meeting your current expenses from your income. You can adjust the repayment length. It is up to you whether you want money for two weeks or two months. You should always carefully plan your loan so you do not fall behind on payments.

The final word

Payday loans are expensive, but they come with a lot of benefits. They are typically aimed at bad credit borrowers when they need money for an emergency. You can get approval on the same day. Although they offer a lot of benefits, they are subject to drawbacks too. You can fall into a hole of debt if you miss the repayment date.