Payday loans are a common emergency funding source.
Payday lenders in the UK are typically able to process loans in less than 24 hours – sometimes faster. However, payday loan companies are known to charge super high APR rates, as well as extortionate fees if you are late on a repayment.
In this guide, we’ll explain the payday loan application process, and advise on the best lenders.
We’ll cover everything you need to know – such as how a payday loan works, how much you are likely to get, how much it is going to cost you, and what you need to avoid to ensure you don’t get hit with additional fees. Moreover, we’ll conclude by listing the best 3 payday loan lenders currently in the market.
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Table of Contents
How to Apply for a Payday Loan? Read our Step-by-step Guide:
If you are relatively new to the online lending space, then we have outlined the main steps that you will likely need to follow to obtain a payday loan.
Step 1: Find a trusted payday loan lender
First and foremost, you will need to do some digging to find a trusted payday loan lender that meets your needs. This should include a lender that is willing to consider your credit standing, but most importantly, a lender that is transparent with its fees. While the UK now has a cap on the amount of interest that you can pay on your loan, you should still try to find a lender with the most competitive rates.
You also need to ensure that the lender is UK based, and registered with the FCA as an approved lender. If they aren’t, the lender is potentially operating in an illegal manner. Nevertheless, to help you along the way, at the bottom of this guide we have listed three of the best payday loan lenders currently in the market – so be sure to check them out.
Step 2: Start the application process
Once you have found a suitable payday loan lender, you will then need to start the application process. Don’t forget, the vast majority of lenders allow you to complete this online, so you can proceed via your desktop or mobile device with ease. Initially, you will need to enter the amount that you wish to borrow, alongside your next payday. For example, if you are looking to borrow £200, and you next receive your monthly salary on October 30th, this is the information that you need to enter.
Step 3: Enter your personal and financial information
As is the case with all loan types, the lender needs to obtain some information about who you are. As such, you will need to enter details pertaining to your full name, home address, date of birth, nationality, and contact details. Moreover, you might be asked to enter your passport or driver’s licnese number to fast-track the verification process.
Next, you will then need to let the payday loan lender know what your current employment situation is. This includes whether you are employed full-time or part-time, where you work, how much you earn, and once again – when you next get paid.
You will then need to enter your banking details. Firstly, you will need to enter your bank account details so that the payday loan lender knows where to transfer the funds. If the payday loan lender seeks to take your repayment via your debit card, you will also need to enter the credentials found on the card.
Step 4: Read the digital loan agreement and sign it
Once you have provided the necessary information, the payday loan lender will then run some electronic checks on you. This rarely takes more than a couple of minutes, so you should receive a decision on your loan application pretty much straight away. If you have been pre-approved, the lender will then let you know what terms they are willing to offer. Most specifically, this will include the interest rate that the lender will charge you to borrow the funds.
Although the FCA now offers a range of protections on payday loans, you are still advised to read the digital loan agreement thoroughly. If you are happy with the terms and wish to proceed, you’ll need to sign the digital loan agreement and submit it.
Step 5: Satisfy the verification checks
In the vast majority of cases, the payday loan lender will ask you to complete a verification exercise before they are willing to transfer the funds. While this will vary from lender to lender, this usually centres on proving your stated income. This might entail you emailing or uploading a copy of your most recent payslip, so that the lender can verify your employer’s name and address, the amount that you earn, and the date that you get paid.
Alternatively, the payday loan lender might need to call you at your place of work. While this can be an embarrassing scenario, lenders will usually not disclose the purpose of the call with the person that answers the phone. If you do have a direct telephone number at work, it’s best to provide this. Ultimately, the reason that lenders sometimes ask to call you at your place of work is to verify that the details you entered within your application are valid.
Step 6: Funding and repaying the money
As soon as you have passed the required security checks, the payday loan lender will usually transfer the funds into your bank account the same day, or the next working day at the latest. In terms of repaying the money, the exact date will mirror that of the loan agreement that you signed.
In most cases, this will be the same day that you next receive your salary. As noted above, most payday loan lenders will take the funds from your debit card. As such, you’ll likely find that the funds will be taken during the night that you get paid to ensure that they get paid on time.
Best 3 Payday Loan Sites 2020:
If you have spent the time reading through our guide from start to finish, it is hoped that you now have a firm grasp of what a payday loan is, and how they typically work. Most importantly, we hope that you have made some serious considerations regarding the costs of the loan.
If you are still unable to find an alternative funding source that comes with a much cheaper rate of interest, and thus – you have decided to proceed with a payday loan application, we have listed three of the best providers currently in the market.
Criteria used to rank the best payday loan lenders
❓Lenders with the most competitive interest rates
❓How much the lender is able to offer
❓What credit score you need to obtain the personal loan
❓What loan terms are available
❓Registered with the FCA as an approved UK lender
What is a payday loan?
As the name suggests, a payday loan is a type of loan that allows you to borrow funds until you next get paid. The overarching concept is that payday loan lenders give you access to fast, emergency funding as and when you need it. For example, if you find that three weeks into the month your boiler breaks down and thus – you need to pay for it to be repaired, then you might need to obtain a payday loan to cover the cost.
In the vast majority of cases, payday loans are meant to be paid back when you next receive your salary. As such, the loan agreement will display your monthly salary date as the date that you need to repay the funds. In most cases, this will be taken via a direct debit agreement or directly from your debit card.
Here’s a quick breakdown of how a typical payday loan agreement works in practice.
- You need to raise £100 to cover the cost of getting to work for the last week of the month
- As you have overspent this month, you decide to raise the funds via a payday loan lender
- Upon completing a quick online application, the payday loan lender is willing to loan you the £100 at a fee of £22
- You borrow the funds on November 24th and agree to pay it back on your next payday – which is November 30th.
- The £100 is transferred to your bank account the next working day
- On November 30th, the payday loan lender takes £122 from your bank account, and the debt is now 100% clear
As you will see from the above example – two key points stand out. Firstly, payday loans are typically taken out for small amounts. As they are designed to cover you until you next get paid, some lenders allow you to borrow from just £50. However, some lenders allow you to borrow much more, albeit, you’ll likely get the option of paying it back over a few months. Secondly, and as we will discuss in the next section – although the loan fee above amounted to just £22, this actually represents an extortionate rate of interest in APR terms. This is, unfortunately, the nature of the payday loan arena.
How much do payday loans actually cost?
The most important consideration that you need to make on a payday loan is how much it is actually going to cost you. There is no getting away from the fact that the APR rates are sky-high, especially in comparison to more conventional debt products such as personal loans or credit cards. As a result, payday loan lenders have a somewhat bad reputation in the UK, with campaign groups looking at the government for enhanced regulations on lending ethics.
With that being said, you need to have a firm understanding of how much you are likely to pay – both in terms of the APR and additional fees.
The most obvious starting point when assessing the cost of your payday loan is that of the APR. This is a tricky one in the case of payday loans, not least because the APR percentage rate is based on a 12 month period – even though your payday loan agreement is unlikely to surpass a week or two. Nevertheless, the APR should still be taking into account as it presents a clear reflection of how much the interest is actually costing you.
When you initially go through the payday loan application, it is likely that the respective lender will display your interest rates in real terms. By this, we mean that it will be displayed as a total amount in pounds and pence. For example, if you apply for a payday loan of £200, the lender might state that your interest amounts to £44, meaning that you’ll need to pay back £244 in total.
However, the good news for you is that the Financial Conduct Authority (FCA) recently imposed limits on the amount of interest that payday loan lenders can charge you. In layman terms, this amounts to a maximum interest amount of £24 for every £100 that you borrow. If you borrow less than £100 then this will, of course, be charged on a pro-rata basis.
✔️ Late Payment Fees
On top of high APR rates, payday loan lenders are also known to charge extortionate fees if you end up missing a payment. In the past, this has seen borrowers owe a significantly higher amount in comparison to what they actually received. However, the FCA ruling in late 2018 means that you are now protected from unethical late payment fees, insofar that this is now capped at £15 per default.
The £15 cap is imposed irrespective of the loan size, which is great. It is important to note that payday loan lenders can still charge you interest on the amount that you default by, which is capped at 0.8% per day. However, the total amount that you end up paying back to the payday loan lender can never exceed twice the amount that you borrowed. For example, if you borrowed £150, the most that you can ever pay back is £300. This includes the original interest rate, the default fee, and the interest on the amount owed.
For more information on the payday loan caps imposed by the FCA – check out its website.
Am I eligible for a payday loan?
One of the key characteristics of the payday loan space is that borrowers typically come from low-income areas. With that being said, the eligibility threshold that payday loan lenders install is wafer-thin. By this, we mean that as long as you have an income of some sort and you are able to verify your identity, then you won’t find it hard to get approved for a loan. In fact, some payday loan lenders have been known to approve applications even when the applicant is not employed and thus – has no income at all.
Nevertheless, here’s a quick overview of some of the minimum requirements that you will likely need to meet to be approved for a payday loan.
✔️ Age: You will need to be aged at least 18 years old to be eligible for a payday loan
✔️ Residency: You will need to be a UK resident, and have been for at least three years
✔️ Verification: You will likely need to have a form of ID so that the payday loan lender can verify your identity electronically. It also helps if you are registered on the electoral roll.
✔️ Income: The payday loan lender is likely to request that you have an income of some sort. The specific requirements will of course vary depending on the payday loan lender in question. You should still be eligible if you work part-time, and some lenders will even consider your application if your income comes in the form of a state pension or benefits.
✔️ Credit Score: While some lenders will perform a credit check on you, others won’t. If they do, then they might require you to have a minimum credit score. However, even if your credit score is bad, this won’t necessarily make you ineligible.
✔️ No Bankruptcies: If you have previously been made bankrupt, or you have an outstanding bankruptcy order on your credit report, then you likely won’t be approved for a payday loan.
Try Our Recommended UK Payday Loan Provider 2020:
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- Apply within 2 Minutes
- Friendly Support Service
- FCA Regulated
How much do payday loans cost?
While the specific rate that you pay will depend on the lender - as well as your individual credit score, there are now caps in place as to how much the lender can charge you. This amounts to a total interest charge of £24 per £100 that you borrow, and a maximum default fee of £15. Ultimately, the most that you can ever pay back on a single payday loan agreement is twice the amount that you borrowed.
Can I still get a payday loan if I am unemployed?
While the specific criteria will vary from lender to lender, most will ask that you have a minimum income amount each month. However, this can usually consist of employment, benefits, or a pension - as long as you meet the minimum amount.
How quickly can I get a payday loan?
If you are able to verify the information linked to your personal identity and income in quick fashion, some payday loan lenders can transfer you the funds within the hour. However, if you are required to submit supporting documentation, then this will, of course, delay the process.