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Late and missed payments, along with other external factors, can have a negative effect on your credit score.
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Representative APR
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Membership fee
2 loans per year
Repay each loan in
Representative APR
Waiting period
Membership fee
2 loans per year
Repay each loan in
Representative APR
Waiting period
Membership fee
2 loans per year
Repay each loan in
Representative APR
Waiting period
Late and missed payments, along with other external factors, can have a negative effect on your credit score.
Payday loans are a popular short-term loan solution that enables borrowers to get their hands on the money they need quickly and conveniently. While payday loans offer some benefits, they have several downsides too. This is why it's important to understand when they should and shouldn't be used, the risks associated with them, and what payday loans alternative options are out there.
Payday loans are lump sums of money that are borrowed from payday lenders. They are repaid over a short period – for example, one week or one month – and are designed to assist people to pay for unplanned, small expenses.
Usually ranging from around £50 - £1000, a payday loan can be easy to access. However, the interest rates are usually far higher than other credit types, with APRs of up to 1500%. Usually, payday loans are paid off when you next receive your salary, but some lenders offer more flexibility.
Payments are typically taken out via direct debit from your bank account so having sufficient funds available is key – charges are made for any missed payments, and these can build up rapidly.
Anybody aged 18 or over can make a payday loan application, but whether you'll be approved will depend on the company's criteria as well as your credit rating.
Many payday lenders specialise in offering their services to people with a low credit score and in urgent need of money. For this reason, it's typically the most expensive borrowing type available.
Payday loans work in a similar way to standard personal unsecured loans, but there are some key differences.
Like a regular loan, the customer makes an application, and the loan company decides whether to approve them, but how they do this often differs.
Many payday loans companies underwriting processes varied from carrying out a full credit check to only verifying the customers income and this was one of the reasons as well as the high interest rates the Financial Conduct Authority decided to investigate these firms. If the lender decided to approve the customer loan, the money will be paid into their account, but, unlike with a traditional personal loan, this was done very rapidly, sometimes as quick as a hour.
The customer will then need to repay their loan, but the difference between payday loans and standard personal loans lies in how quickly the loan must be repaid. Often, the loan must be repaid in full within 30 days, whereas with a traditional personal loan, the period is extended over several months or even years.
To save money on a payday loan, you should try to keep the loan amount to a minimum so that you can easily repay it within the agreed term.
Failing to make this repayment will cost you a lot more money as you will have high interest charges and fees and charges for your late or defaulted payment.
Above all, you should never take on a second payday loan to pay off the first one, as this will just lead to an ongoing spiral of debt that becomes extremely difficult to manage.
The best way to save money on a payday loan is to not take one out in the first place, but to look for suitable payday loan alternatives.
There are several reasons why looking for payday loan alternatives may be a good idea for you. These include:
Payday loans are very costly, with interest rates as high as 1500%.
It's very easy to get trapped in a cycle of ongoing debt where you need to continually borrow more money to pay the previous debt off.
At such a high interest rate, the debt grows rapidly, and you can all too easily end up owing far more than the original amount you borrowed.
Paydays have two types of costs associated with them:
Interest is paid by borrowers to lenders as a fee for their lending service. Usually, this rate is shown on borrowing paperwork as an APR or annual percentage rate. Payday loans have a typically very high APR, often as high as 1500%
Fees are charged if you miss a payment or make a payment late. Furthermore, your lender will probably report the missed or late payment to the credit reference agencies, making it harder to get approved for credit if you apply in the future.
Many payday lenders aim their products and services at people with a poor credit score. But there are payday loan alternatives that even those with bad credit can take advantage of.
Some companies view payday loans negatively since they see those who use payday loans as unreliable borrowers. This means that if you have one on your credit report, it may count against you. Furthermore, any application for any type of loan will probably temporarily reduce your credit rating because of the hard inquiry the lender makes, and the new credit account being added to your profile.
Bear in mind, though, that you won't have a single credit score since lenders, companies and credit reference agencies all calculate your rating using criteria and methods of their own. This means your payday loan could have a different effect on your score with other organisations.
Perhaps the most significant risk of payday loans is becoming trapped in the debt cycle – borrowing funds because you lack sufficient money to pay your expenses and then finding you lack funds again because you need to pay the loan back plus interest.
Payday loan companies also charge fees if you fail to repay in full or on time.
Although those fees have been capped by the FCA at £15 as well as interest on the original amount borrowed, since the rates are high, the costs mount up rapidly if you cannot repay in time.
Remember, too, that interest is worked out as a percentage of the total amount borrowed and for payday loans will typically be charged daily.
That means the bigger your loan and the longer the period you have it for, the more money you'll pay in interest.
There are several payday loan alternatives that you could consider. These include:
An overdraft – if you have access to an authorised overdraft from your bank, you can borrow money instantly from your current account.
Cash advances – if you have a credit card, you may be able to borrow money instantly by withdrawing funds from it. Be aware, though, that there will be a cash advance fee to pay as well as interest for taking out the cash.
A money transfer – if you have a credit card, you may be able to transfer money from it to your bank account by phoning the card provider. There may be additional fees for doing this.
Take out a personal loan – one option is to borrow funds by taking out a personal loan then paying back the money monthly over a period that is usually 6 months or more.
Get a guarantor loan – if you have a willing friend or family member who could act as your guarantor for a loan, you may be able to get approval for a personal loan even when your credit score is poor.
Get a bad credit loan – this type of loan can sometimes be obtained from specific lenders who specialise in lending money to people with a poor credit rating. These loans are more costly than a standard personal loan but are cheaper than a payday loan.
Use a no-interest loan (Rep. APR 83.1%) from Creditspring.
Creditspring makes unexpected expenses not so unexpected. So say goodbye to payday loans!
When you become a Creditspring member, you won't need to worry about the high cost of short-term loans if you have an unexpected expense to deal with. A Creditspring no-interest loan gives you more freedom to make plans in advance without the fear of spiralling into a cycle of financial debt. When you take out a Creditspring no-interest loan, you will know precisely how much you owe at any given time with no extra time wasted on working out interest rates since all costs will be given to you upfront.
Creditspring is a safer alternative to payday loans, offering small, easy-to-manage loans with no hidden fees and no risk of debt spiral. People are often persuaded to apply for a payday loan because they can easily access and provide funds rapidly, even to those who have a poor credit score.
It's essential to be aware that these payday loans can be very risky due to their high interest rates and fees. This means that there are far better and more affordable alternatives out there, and Creditspring is one direct lender loans provider that can help you out.
Our no-interest loans (Rep APR 83.1%) are an ideal choice for borrowers who have a low credit score but who are facing a sudden expense. You only need to pay a small membership fee each month on top of your loan repayments, so you'll be able to get back on top of your finances more easily.
Checking your eligibility with Creditspring is easy! Know if you're eligible for one of our loans within seconds without any impact on your credit score. So there are no worries about damaging your chances of securing credit in the future by making an application.
Here at Creditspring, we make sure that all the checks we run on your credit history are soft inquiries, so finding out whether you're eligible for one of our loans won't negatively affect your credit rating.
We believe that an affordable emergency fund to fall back on should you need it, is better than resorting to taking out a payday loan. Be prepared and check your eligibility in just 60 seconds with Creditspring. Just complete your details here and get the ball rolling!