Do you wonder if payday loans in the UK are bad? Well, this is something which can be explained only if you understand what a payday loan is. As the name implies, payday loans are short term loans that provide fast cash for emergencies, to be repaid on your next payday.
In other words, if you need urgent cash, and you expect your pay in a week’s time, a UK payday loan offers the instant financial assistance you need till your next paycheck. It’s easy applying for a payday loan as it’s done online, from your own home or office.
You need to be at least 18 years of age, have an active bank account in your name and proof of employment or any regular source of income as the amount you borrow depends on your income. There are no restrictions on how you use the money, and once you apply, your loan may be sanctioned within 24 hours.
However, like any other loan, you need to borrow responsibly and make it a point to repay your payday loan in the UK on the agreed upon date to prevent any unnecessary penalties or extra fees. It’s only if you don’t repay your loan on time that you start realizing are payday loans bad as you may end up in a spiralling mountain of debt.
Why UK payday loans are bad
Payday loans come with a high rate of interest anywhere between £15 to £30 for each £100 borrowed. As payday loans generally range between £100 to £1000, You may have to pay as much as £30 to £300 as interest if you fail to repay the loan when you next receive your paycheck. While this may seem a small amount, remember that this is a short term loan, and the interest is added to the loan amount every month, and can eventually reach substantial amounts.
Payday loan and your credit score
It is true that your credit score is not taken into consideration for a payday advance approval. This is also one of the reasons people prefer taking payday loans online instead of getting traditional loans. Even those with bad credit, or who had bad credit in the past can be approved for the loan. You can also get a payday loan if other banks have turned down your loan applications.
However, your credit score is at a huge risk if you fail to pay off your payday loan. This is because the lenders will try depositing your post-dated checks, which will bounce if you don’t have sufficient funds to pay them off. If this happens a few times, then its effects are seen on your credit score.
On the contrary, if you repay your payday loan on time, it reflects positively on your credit score and even negates anything negative on your file. You can maintain a healthy credit profile if you make punctual repayments every month.
All this shows that it’s not possible to say if payday loans are good or bad, as it all depends on how you use and handle them. They are good if you use them only when you need emergency cash, and know you will repay with your next pay check. However, they can also be bad for you if you don’t know how to manage your loan well.