When it comes to payday loans, there’s no shortage of horror stories out there. Short-term emergency loan companies definitely get a lot of bad press, making it difficult for many people to understand why they’re so popular. It’s an undeniable fact that the payday loan industry has grown rapidly in recent years, particularly following the recession of 2008, and that there are plenty of people in the UK who rely on payday loans to tide them over in a rough financial patch. It’s no secret that payday loans have their pitfalls, but what is it that’s keeping so many people going back for more?
Got A Dodgy Credit History? No Problem.
There are plenty of other places that people can turn when they need a loan. Whether it’s your usual bank or a different financial services provider, loans are available to many borrowers with flexible repayment terms and relatively low interest rates. However, these loans tend to be kept out of reach to those with a poor credit history.
Bad credit can be unfortunately easy to rack up. From missed phone bills to expensive credit card repayments that you couldn’t quite keep up with, those little mistakes and mishaps can add up to a poor credit score. Although it is possible to build your credit rating back up, this can take time and for those struggling with their finances, it may be seem like a far-fetched fantasy.
If you come across a pre-payday financial crisis and your credit score is less than perfect, accessing a loan from your bank will probably be easier said than done. The first thing that a bank or lender will do when processing an application for a loan is to run a credit check, and most banks will immediately reject the borrower if a poor credit score shows up, regardless of the rest of their application and their financial circumstances.
This is where payday lenders can step in and provide an often-needed service. When a customer applies for a payday loan, most lenders won’t run a credit check and will approve based on income and employment information. This gives those with bad credit, even borrowers with a record of bankruptcy or frequent defaults on loans, the opportunity to get the loan they need.
There are banks out there that offer loans to people with a bad credit record, but they often ask the borrower to agree to a secured loan instead of an unsecured personal loan. A secured loan places collateral on the loan that the bank can use to recoup their losses if repayments aren’t made on time. The collateral is often the borrower’s home, which forces the borrower to take a major risk should they have trouble paying the loan back- they could possibly lose their home if things don’t go to plan. Payday lenders always offer customer’s unsecured loans, so while they do take a risk when borrowing, the lender won’t be able to sell their home out from under them if things go wrong.
Most of the customers who turn to payday lenders will be in some kind of emergency that requires them to get hold of a relatively small amount of cash in a hurry. The application process for a payday loan keeps this in mind, and makes it very simple and fast to apply for and receive the loan. Performing a quick comparison of the various lenders will inform you of the rates and example loan amounts available to you. Most payday lenders offer online applications with short forms to fill in, and customers only need to provide a few personal details, usually their employment and banking information and contact details.
Some lenders even offer mobile options that allow borrowers to complete the entire loan application process application from their phone, making it quicker and easier than ever before to access money in a hurry.
Once the borrower is approved for a payday loan, the company works hard to get the money into their account as quickly as possible. In many cases, this can be within a matter of hours. This allows people to get the cash they need in an emergency without having to wait around for days for approval on a loan. They also won’t need to have loan agreement papers delivered to be signed, or go in to meet with a loan provider in person at any stage.
Prevent A Crisis
Although payday loans can certainly worsen a person’s financial circumstances if they’re borrowed without the means to pay it back on time, they can also be useful for preventing worsening debt that may be difficult to avoid otherwise.
Say you have a bill that urgently needs to be paid- the direct debit is about to go out imminently and because of unforeseen expenses that you couldn’t avoid, you know there’s not enough cash in your account to cover the debit order, you could end up with some major charges, an overdrawn account and bounced bills if the money doesn’t appear in your account quickly. This is where payday loans can come in handy- they allow people to borrow just enough to prevent a financial disaster, allowing them to get through to the end of the month without missing bill payments.
Of course, this tactic is really only effective if you know that you’ll have a paycheck coming into your account before the loan repayment is due, and a plan for how you’re going to pay it back on time. However, if you do have the means to cover the costs and the benefits of meeting your financial commitments on time outweigh the risks of taking out the loan, payday lenders can offer a handy solution to a common problem.