Payday loans explained
You may have heard the terms "payday loans", "instalment loans" or "short-term loans" and wondered what the difference is. Here we explain what a payday loan is.
Quite simply a payday loan is a form of short-term loan where you settle the balance the next time you get paid. In other words, it’s a loan to cover you until payday. Given the short period of repayment, payday loans usually have small credit limits and a higher Representative APR.
On average people take out payday loans for around two weeks, more often than not when they find themselves in urgent need of cash.
What may you need a payday loan for?
We all have our usual monthly outgoings for domestic household bills, mortgages or rent, shopping and so on – these things are easy enough to budget for.
However, say your boiler breaks and you’re left without hot water or heating. What if your car breaks down? Emergency expenses like these come along every now and then, and there are many people who don’t usually have enough disposable income or savings to cover the cost of these bills.
This is where a payday loan may be suitable. Given the nature of the product, in that you can usually get a speedy decision from a lender and the money in your account relatively quickly (subject to affordability and creditworthiness checks) this is an option used by an increasing number of people as a short-term fix.