Do you like many others count down the days until payday? For many it simply can’t arrive soon enough as we attempt to juggle ever increasing bills and expenses, as well as trying to have a little enjoyment in life. Unexpected expenses can hit even those who keep a tight hold on their finances even if something was to go wrong in the home, a family member needs help or you receive a larger than expected bill you might require cash to help you get by until your next pay day.

This is where a payday loan (also known as a ‘cash advance’ or ’short term loan’) comes in handy, offering a suitable sum of money to help you get by till your next pay day. Our following guide tells you all you need to know about payday loans including how they work, the charges and who they are right for.

What is a payday loan and how does it work?

The idea behind a payday loan is simple - whatever you need cash for, you can take out a payday loan (ranging from £80 to £750) that is repayable on your next payday, whether it is 31 days away or less.

It is dubbed a ‘payday’ loan because the concept is that borrowers take out the loan to fill the gap between now and payday. However, it is not necessary to use the loan for this purpose and effectively the cash can be used at your discretion as long as it is paid back with interest during the short loan term.

You must however, be able to satisfy the payday loan provider that you will have enough cash available to cover the advance repayment - they will look at how much you can afford to pay back on an individual basis.

Payday Loans will also allow you to gain an extension on your advance as long as you pay the interest over the first loan period.

What are the charges involved?

The great thing about Payday Loans is that you don’t have to worry about administration fees and while you should always be vigilant with the majority of payday loan providers there are no hidden costs with Payday Loans.

The charge you need to observe is how much you pay back on the amount you borrow - this is a fixed sum dependent on the individual provider. In the majority of instances for every £100 you borrow you have to pay back £125, meaning £25 interest.

*Payable in a single payment on your payday

Beware that if you want to extend the loan period by paying off the interest only, Payday Loans will charge an additional fee for rolling.

Who are payday loans right for?

As long as you have a regular income and an active bank account with a debit card, a payday loan could be right for you:

• If you need cash instantly - A number of companies will allow you to take out an instant payday loan. Online payday loans or fax payday loans are often paid into your account straight away, though some companies deliver on the next working day.
• To pay off a more pressing debt - If you need to pay back a debt with a higher rate of interest, a payday loan could clear the payment quickly.
• If something unexpected happens - Unforeseen occurrences could leave you relying on a quick cash solution, for example a broken boiler at home.
• If you have a bad credit history - As long as you will have sufficient funds available to pay the advance cash loan, then your credit history is not taken into account.
• If you are a tenant - Unlike with many loans it is irrelevant whether you are a tenant or a homeowner.
• If you want to avoid defaults - With many banks, defaulting on a current account can lead to heavy charges - in some cases as high as £90 over the course of a month. Consequently it can be a good idea to take out a payday loan as an alternative and simply pay a fixed interest charge instead.

Pros and cons of payday loans

Pros: a financial stop-gap to solve short-term cash-flow problems

A payday loan is a way to solve a short-term cash issue. A cash advance allows you to regain control in a dignified manner without taking on a long-term debt problem. There is no impact on your credit rating and it is not necessary to discuss the terms of your situation with a bank or lender.

Cons: not suitable for long-term lending

The high rate of interest means that payday loans should not be used for long term lending. Though they could save you money over a short-term monthly period, if you proceed with this payment method over a longer term they are not cost effective. It is much like taking a taxi - it’s a great way to get around on a short journey. However, for lengthier journeys you are better to use a method of transport that specialises in long distances such as a train or plane. Payday loans are certainly a short-term special.

How do you qualify for a payday loan?

All you require to qualify is:

• Be over 18 years old.
• In fulltime employment
• Take home more than £750 per month
• Have a bank account with a valid debit card