payday loan

Payday loans are small loans (under £1,000) taken out for a short period with the funding guaranteed by your next pay cheque. Most payday loans last for a maximum of 31 days, although some are just seven days long.

Getting a payday loan is very easy. For example, with text loans you typically need to provide only a few basic details, including your bank account details to apply. They simply require you to register once and then you can just send a text message and you’ll receive instant cash into your bank account.

The only stipulations with these guys are that you are a UK resident, at least 18 years of age, employed and earning at least £400 per month and you must have a valid bank account, mobile phone and an email address. However, they will generally not lend to anyone who has had a CCJ or been made bankrupt in the past 18 months.

A growing market

The payday loan industry has really taken off since the credit crunch. A report by Consumer Focus revealed that the number of people taking out payday loans has quadrupled to 1.2 million in the past four years.

The popularity of payday loans is understandable – the problem with the unsecured loan market is that providers are now really, really picky about who they will lend to. Anyone with blemishes on their credit rating may well be excluded from mainstream lenders, meaning that some people have nobody but the payday loans companies to turn to.

The problem is that these loans have extortionate rates and it’s far too easy to build up a terrible debt burden if you can’t pay it off immediately. Even if you can pay off the loan quickly, it still costs a shocking amount in interest.

HOW MUCH DO THEY COST?

At face value, some payday loans may seem like an attractive deal.

At text loan, for example, you pay £17 interest  on a £100 loan, paid back after 15 days. This is actually cheaper than some unauthorised overdraft bank account charges. However, working out to a mammoth 4474% APR plus a £1 handling fee per text , this deal doesn’t look so good.

Thames Financial Payday Loans offer payday loans from £50 to £750. They act as a broker, searching a number of providers on your behalf.  Therefore the terms and conditions you get from Thames Financial will vary because of the variety of lenders they deal with. Whatever deal they come up with, always check the small print – especially the APR rate, as it will likely be pretty high.

Quidtilpayday offers quick loans from £80 to £750. As with Thames Financial, the typical APR varies – be sure to check it!

Paydayfinder offers quick loans from £80 to £750. On a £100 loan you’d repay £125, with the typical APR being a huge 1770%.

At Wonga.com the typical APR is an eye-watering 4,214% APR. There is a £5.50 transmission fee to pay but the total cost depends on how long you want the loan for. For example, if you wanted £100 over 7 days you would have to repay £112.78, but if you wanted to pay it over 31 days you would have to repay £137.76.

Misleading APRs

It’s true that these APRs (Annual Percentage Rates) are perhaps misleadingly high because they are used to calculate interest over 12 months – which is admittedly not very helpful when payday loan periods are no more than 31 days.

However, APRs still serve as a reminder that using payday loans compared to say a credit card is potentially a very expensive way to borrow money, and if you’re relying on them they could actually leave you with an even bigger debt problem than when you started.

The other problem with payday loans is that the full amount is repaid all in one go that may place you in a similar position the following month. If therefore you find that you are unable to pay back the payday loan, that’s when the big charges start racking up…