A Complete Guide To Payday Loans

Before You Apply For Your Payday Loan

• Assess And Understand Your Circumstances
• Understand the Loan Industry Jargon
• Do Your Research

Applying for your loan

Repaying Your Loan

After Your Payday Loan Period Has Concluded

Before You Apply For A Payday Loan

Assess And Understand Your Circumstances

It’s vital to assess and understand your circumstances completely before progressing with any credit application. This means knowing exactly how much money you need, why you need it and being certain you can pay it back. Remember that any money you borrow will include interest.

Payday or short-term loans are intended to help you in a financial emergency or a one-off situation. They are not recommended for random spending or as a source of regular borrowing. They can be used for emergencies such as: 

• Your vehicle requires immediate repair.
• Your boiler breaks down and must be fixed or replaced urgen
• You receive a utility bill that is larger than you expected and it requires immediate payment.
• You require emergency dental work.
• The family pet is unwell and needs veterinary care. 

A payday loan or short term loan should not be used:

• For buying nice to have items or frivolous spending.
• To cover non-emergency situations (something you can pay later when you get paid at the end of the month for example).
• When you have cheaper alternatives available to you.
• As a source of regular borrowing (they should be used as a one-off).
• If you are struggling financially.
• If you have any doubts that you might not be able to pay back the loan.

Remember, you should only borrow the amount that you need to cover an unexpected emergency expense. If you need your loan for a home repair or a boiler replacement, get a quote before you apply. It can be best to get a few quotes from different businesses to make sure you get a good deal. This ensures that you are never borrowing more cash than you need. You may even find that you have enough money and you don’t need to borrow money for the repair.

IMPORTANT: Before applying for a loan, understand you’ll need to budget for the repayments and make sure you work out beforehand what you can realistically afford to pay back. 

If you find yourself consistently falling behind on your finances and worried that your debt issues are becoming unmanageable, you should avoid high interest credit such as payday loans. You may want to talk to organisations that are able to help you manage your finances. These organisations receive specialised training and are equipped to provide you with expert advice and practical solutions. Some well-known organisations are: 

• National Debtline: 0808 808 4000
• StepChange: 0800 138 1111
• Money Advice Service: 0800 138 7777
• Rethink: 0300 5000 927

Understand the Loan Industry Jargon

Understanding the industry jargon can help you be better prepared when applying for credit. It can also help you get the best short term loan deal for your circumstances. For a complete glossary of loan-related terms, see the MustCompare Loans Jargon Buster.

• APR – APR stands for Annual Percentage Rate and is always shown as a percentage. It refers to all costs included on the loan product if the loan was taken out for a year, including interest.
• Broker – Brokers use data they have on borrowers to find potential UK lenders. Some payday loan lenders may redirect you to a broker if your application is not successful. The lender should inform you beforehand that they may redirect you to a broker.
• Continuous Payment Authority – This refers to the automated process of taking payments from customers (usually a card payment) on a pre-agreed basis. Both lender and loanee must agree on the terms of this agreement, so it’s best to read and understand the terms before agreeing to borrow money. These payments will continue until the loan is paid off in full. The lender can only make two attempts to take payment when due. If they fail to collect a payment they will likely try to contact you.
• Credit Check – This is a check performed on a loan applicant once an application is made. This provides the lender with a comprehensive look at the applicant's credit history and assesses their eligibility for a loan. 
• Direct Lender – Direct lenders deal with a customer directly, and unlike brokers, they can only offer their loan products/services to customers. You can also get direct lenders who are also brokers, meaning that if your application is not successful they may try to find you another lender or similar product. 
• FCA – The FCA, or Financial Conduct Authority, is the regulatory body that authorises and regulates financial services in the UK.
• Fees – Fees refer to additional costs, excluding interest and scheduled loan repayments, for example late repayment fees (fees incurred due to late payments on your loan).
• Loan Term – This is the length of time you will have to pay your loan back.
• Monthly Repayments – This is the amount that you will be repaying every month until your loan amount has been repaid in full.
• Responsible Lending – Responsible lending is the fair treatment of customers, by only lending to those who lenders know can afford to pay back a loan.
• Representative APR – This refers to an advertised APR rate that is offered, not every applicant will get the same rate, and some may get lower.
• Total Amount Repayable – This is the total amount that you will have repaid once your loan has been concluded and paid in full, inclusive of interest.

Do Your Research

Before applying, consider alternatives that are available to you. Payday loans have high interest rates, so it is worth digging around and looking at your options. Alternatives to a payday loans can include:

• Bank overdraft
• A personal loan
• 0% purchase credit card
• Requesting your salary be paid earlier or in advance
• Asking a friend or family member
• Borrowing for a credit union

If you are experiencing financial difficulties, then you should look for alternative options. Borrowing money that you may not be able to pay back may put you in more financial difficulty and stress. Also don’t just consider the first lender you find or available to you. Shop around and compare options to find the best short term loan for your needs.

Applying for your loan

Loan applications are usually straightforward and done online. The lender will ask you how much you want to borrow and over how long; you should then be given an indicative interest rate and the monthly amount you have to pay back, plus the overall amount. Once you've given all the relevant personal information and submitted your application, you may get an immediate provisional response. Sometimes you may receive a reply later via e-mail. Once you receive your response, check your terms before agreeing to receive the money.

Repaying Your Loan

If your loan application is successful, and you agree to the loan terms, make sure that you pay the monthly amounts on time and in full. If you miss any payments, you could find yourself facing difficulties further down the line regarding credit applications.

Missing a payment or defaulting entirely on a loan could result in a record of this action being marked on your credit file. So, for example, if you were to apply for a new mobile phone contract, this record could mean that you are offered less favourable terms, or you could be refused.

NOTE: If you find cannot make a loan repayment you should get in touch with your lender to discuss your options as soon as possible.

After Your Payday Loan Period Has Concluded 

Once your payday loan period has concluded, consider building up a small amount of money in case of a future emergency. You don’t want to be continuously turning to lenders to borrow money, especially high cost short term loan. Budgeting can be simple, fun and rewarding, see our guide “Simple Ways To Make Budgeting Fun”.