Payday loans are quite popular among those who need money to fund an emergency. Not to mention, these loans require a lump sum payment, normally due on your next payday. However, a couple of lenders have begun advertising these loans as instalment loans like “3-month payday loans” and “6-month payday loans”.
This begs the question if these kinds of advertisement claims are authentic or outlandish. It is not surprising at all to see that some lenders make spurious claims to attract borrowers.
Small loans can be instalment loans, but not all of them may be on an instalment repayment plan. You may be tempted to apply for payday loans without brokers to those lenders who advertise them as “with instalments”, but you should be careful of these loans. Lucifer is in detail.
What are standard payday loans?
A standard payday loan is an emergency loan, which bad credit borrowers usually take out. A survey has reported that good credit borrowers never applied for these loans.
You will have difficulty getting approval for a loan when you have a bad credit rating. In case of emergency, you cannot afford the delay in the arrangement of cash.
Mainstream financial institutions will not sign off on your application because of a less-than-perfect credit rating. Accordingly, you may require to apply for a standard payday loan from direct lenders.
What does make these loans different from other small loans?
Although payday loans have some similarities, they are still different from other emergency loans. Here is how they are different:
Instant approval
These loans are advertised as loans with instant approval. Despite a bad credit score, you will likely get approval the same day. Some lenders do not run a hard credit check to keep your credit score intact. The decision is just made based on your income statement, and money is transferred within an hour after you apply.
Doorstep service
Some lenders allow their customers to avail of doorstep service, exclusively available for the retired and the disabled. In other words, these loans are also known as doorstep loans. The representative will visit your house to hand in and collect payments.
Do payday loans with instalments exist?
A couple of lenders sign off on these loans with an instalment repayment plan. In most cases, these loans are repaid in three months, except for some cases where the repayment plan may extend up to six months.
The refund plan of an authoritative payday loan does not last more than fourteen days. The whole money is paid back in a lump sum. As far as it is about instalments, some lenders may allow you to pay back the money in two weekly instalments.
Some lenders provide a repayment plan that lasts between three and six months. It is quite a longer repayment plan for payday loans that generally do not involve lending more than £700, in rare cases, up to £1,000.
Lenders with a longer repayment plan might offer you a large amount of money, say, £1,500 or probably up to £3,000. This kind of scenario exists, but you must be very careful. Why? Because they are:
Extremely expensive
Suppose you borrow £1,000 for three months; you will certainly find monthly instalments smaller, which makes it easier for you to repay the loan. However, on the other side, these loans will cost you much more than your expectations.
Smaller monthly payments will mean paying more interest in total. This may impair your budget after the settlement of the debt. You may even find yourself running out of money and borrowing for your recurring expenses as well.
Extremely risky
If you take out a payday loan with a larger amount of money, say, £1,500, to be paid in three monthly instalments, you may find it harder to keep up with payments. It is not that difficult to understand that you would not be able to settle the debt if you could not arrange £1,500 from your pocket – after all, the debt adds in interest on top of the principal amount.
A lender will not have a clear picture of your past financial behaviour if the lending decision is just made based on your income statement. As a result, they would consider you a suitable applicant, although they would not if they checked your credit report.
This will be a problem for you only. Default on payday loans will show up on your credit report for up to seven years, making it impossible for you to borrow money down the line.
How can you get the best deal on payday?
Payday loans are expensive. The interest rate that a lender can charge on these loans is capped at 0.8% per day. If it is rolled over for a year, you will pay three or four times the borrowed amount. It is always suggested that you be careful while taking out payday loans. Here is how you can get the best deal on them:
You should avoid borrowing large amounts of money on these loans. The smaller the size of the loan, the better.
Avoid a lender who does not check your credit report before deciding on the lending amount. You will likely fall into a debt trap as these loans can be very expensive.
Consider borrowing money from a lender who allows you to repay it in weekly or bi-weekly instalments.
Payday loans with three or six months should be ignored even if some lenders do offer them. Instead, you should apply for an instalment loan with bad credit. They carry lower interest rates than the former.
The final comment
Payday loans without brokers can help save some money on broker fees, but these loans are quite expensive. You should try to carefully analyse your repaying capacity before borrowing money. Use an online payday calculator to check how much it is going to cost you, not to mention the actual cost will be higher than the estimated one.
Lisa Ann has developed a well-experienced professional career. From managing the staff of more than 50+ loan experts at Fastmoneyfinance to boosting the delivery of various loan offers, she has acquired many challenging roles to come out with the best results for the company. Lisa Ann is a Senior Content Author and the Chief Financial Advisor at Fastmoneyfinance. To back her massive experience in the UK’s financial industry, she has the postgraduate degree and diploma in Business and Finance.