If you need to pay for emergency expenses such as repairs, or medical bills, you can opt for small cash loans. Many banks and financial institutions offer such loans, provided you share the relevant documents as proof. One of the most popular small loans in the UK is the payday loan.
Overview of Payday Loans
Payday loans are loans offered by lenders knowing that the loan will be repaid once you receive your wages. The only drawback to these types of loans is that the average annual interest rate will be very high when compared to other small loans.
It is always better to research your lenders and discuss the interest rates before opting for payday loans. If you live in the UK and are a UK resident with a steady income, then you can look at payday lenders like Loan Pig located in Manchester, UK.
The duration of the payday loans offered by them can range between 2 months to a year depending on your requirements.
A few years back, due to the growing concerns about the price cap for payday loans, the Financial Conduct Authority (FCA) introduced new rules on the amount of interest the lenders could charge:
- The fixed default fees would be capped at £15. If you default to pay on time, you will not be charged more than £15
- The cost cap per day would be 0.8% of the amount borrowed
- The total cost cap would be 100% which means you do not have to pay more than you have borrowed
So how do these loans work? When you enquire about payday loans, your bank might ask you to opt for a recurring payment option known as the Continuous Payment Authority (CPA). This allows the bank to take the money from this account on the repayment date.
If you are not comfortable with CPA, you can ask your bank for other repayment options such as:
- Standing Order
- Direct Debit
If for some reason, you are unable to repay your loan, you can cancel your CPA, direct debits, or standing order instructions by informing your bank. You can even check with your bank if they have the option of loan rollover wherein you can push the repayment date to the next month.
If you are sceptical about opting for payday loans you can take the help of credit unions. These unions are the best option if you have a poor credit rating.
Using Debt Solutions to Pay Off your Loans
If you have already taken a payday loan, and at not in a position to pay off your loan then you can look at debt solutions such as:
- Individual Voluntary Agreement (IVA)
- Debt Management Plan (DMP)
- Debt Consolidation
IVA refers to the contract between you and the debtor about how you will pay off your loans. An insolvency Practitioner will be involved in setting up the process and offer a proposal to the back on the loan settlement.
DMP, on the other hand, is an agreement between you and the creditors to pay off your debts your DMP provider will offer an affordable payment option and talk to your creditors on your behalf. Under debt consolidation, you will take a consolidated loan to pay off the rest of your loans.
Ensure that you are familiar with payday loans and how they work before you opt for one. If the amount is small, you can even borrow from your friends or peers.