Everything You Need to Know About Payday Loans

Everything You Need to Know About Payday Loans

You should always expect the unexpected. You can't always know what tomorrow will bring, even the most financially responsible among us can get caught unprepared sometimes. That's why it's always a good idea to have a backup plan for if you ever need fast financial help. This is where payday loans can helpful.

Overview of payday loans

A Small Amount Credit Contracts (SACC) are a type of cash loans that are commonly known as payday loans because of their relatively small amount and short repayment periods. Payday loans are usually faster than getting a loan from a bank, and it can be easier for people who don't have access to other forms of credit to get approved for a payday loan.

To get a payday loan, you usually need to apply online. Once you have been approved, you could have the money in your bank account within a few hours, or it could take as long 48 hours. The repayments are direct debited from your bank account, and these can be scheduled to coincide with the days that you receive your pay from work.

How much do they cost?

As with any kind of finance, there are costs associated with payday loans. However, payday loans work a bit differently than other forms of credit because payday loans charge fees rather than interest. The fees involved are usually an establishment fee of 20% of the principal loan amount and a monthly fee of 4% of the principal loan amount.

You don't have to pay these fees upfront either, they are added to the loan amount and factored into your scheduled repayments. This is different from credit that accumulates interest, like a credit card or bank loan, because the credit provider can charge you compounding interest.

When is it a good idea to get a payday loan?

It's best to use payday loans when you have large, unexpected expenses that can't wait until your next payday. These are the kinds of costs that you don't usually budget for because they aren't regular or recurring costs. Some situations where payday loans can be very helpful include:

Emergency car repairs.
Last minute flights to attend a funeral.
Replacing broken white goods.
Car registration or servicing.

It's not a good idea to use a payday loan for impulse purchases, recurring costs like rent, or purchases that can wait until your next payday. These are the kinds of expenses that you should ideally budget for with your regular income and save up for the things that you want that aren't essential purchases.

How do you know if a lender is responsible?

The finance industry is very highly regulated, and payday lenders have some of the strictest regulations there are. That means that all licensed Small Amount Credit Contract providers should play by the same rules. The most important thing to look out for when choosing a payday lender is their customer service.

A responsible payday loan lender will let you reschedule your repayments if your circumstances change, like if your pay is going to be late coming into your account, instead of just charging you late fees. Always choose a payday lender that understands that things can change and doesn't try to make your financial situation worse.