The Ins and Outs of Payday Loans – Understanding the Basics

The Ins and Outs of Payday Loans – Understanding the Basics

As one of the quickest ways to borrow money online when you really need it, a payday loan can be a simple way to resolve short-term emergency expenses. However, if you’ve never used one before, it can be easy to become confused about what they are and whether you should apply for one. To help, below we’ll explain a few of the basics you should know about payday loans and when is best to consider one, so you can make an informed decision on whether they are the right choice for you.

What are Payday Loans & Do I Need One? 

Also known as short-term loans, a payday loan enables you to borrow a small cash amount typically between £100 to £1,000, (although this varies between lenders) and is designed to be used to cover urgent expenses when you lack savings or available funds to help.

If you’re facing unforeseen financial needs or an emergency that won’t wait until you are next paid, they can be a quick way to get the cash you need to resolve the situation. You can then choose repayments over a few months, most commonly between 3 – 6 months, to spread the cost, making it easier to afford. Although if you can afford to do so, you can choose to pay off the balance in full on your next payday, whichever works best for you.

The application process online is normally quick and efficient, helping you to quickly apply and get a lending decision within minutes. For those with less than perfect credit histories or a low credit score, they can still be available too. This will depend on whether you can afford to sustain the repayments you choose and the lender’s eligibility criteria. Applying for a payday loan will ultimately come down to your situation – if you can afford to resolve your position without one this is always ideal, but if you have no savings and no other means to resolve your situation, they can help if affordable for you.

Pros and Cons of Payday Loans

Payday loans offer a quick solution for urgent financial needs, with minimal eligibility requirements and a focus on your ability to sustain repayments. If you’re facing an emergency and you have no other suitable choice, they provide immediate access to cash usually the same day if approved. When used responsibly, they can be a good option when you really need them.

However, it’s important to consider that the convenience of payday loans shouldn’t mean overlooking the details. Like all loans, you will need to pay interest, so you should ensure that the total loan amount and the repayments are affordable for you, and you are happy with the total cost of borrowing before proceeding.

You should carefully read the terms and conditions and ensure you are using a payday loan lender that doesn’t charge any hidden fees. Check that the lender is authorised by the Financial Conduct Authority (FCA) before signing any credit agreement and that they are transparent with any additional costs such as late payment fees or admin fees.

Tips for Responsible Borrowing

Before going ahead and applying for a payday loan, you need to ensure that this is the best option for you and that you have considered alternatives first. Can you resolve your short-term issue another way such as by using emergency savings, or waiting until your next salary date? Can any friends or family help you in the short term? You want to ideally avoid borrowing if you can help it, so rule out any other ways to get back on track first.

Be sure to only use FCA-authorised lenders as this will ensure you are treated fairly as a customer and that you can access competitive rates of interest. Unauthorised lenders may charge you additional fees or charge higher rates of interest, so always check these details on the lender’s website and visit the FCA register to check if you’re still unsure.

Lastly, it's essential to budget wisely and borrow only what you can afford to repay each month. The lender will check if you can sustain the loan, but it is still your responsibility to ensure you can sustain repayments on time. If you are confident the loan can be sustained and the lender can determine this during credit and affordability checks, this will improve your chances of being approved for the loan you need.

Overall, whether it’s an unexpected bill or another type of financial emergency, a payday loan can be helpful – just ensure you can afford it, that you’re happy with the interest charge, and that you’re using a reputable lender first.

The Ins and Outs of Payday Loans – Understanding the Basics
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