What Pay Day Loan

A Payday Loan is a short term loan. It is usually intended to cover the borrower’s expenses until they receive their next pay cheque. Payday loans are also sometimes called a pay cheque advance.

This sort of loan is normally for quite a small amount in the region of £50-£500, and there are many places online and on the high street where you can apply for them these days. One of the reasons they are popular is that they can be applied for quickly and easily, and you can receive the money into your bank account within hours meaning that if you’re in need of money to fund food, travel, and other everyday expenses for a few days till payday, or to pay for an unexpected bill such as getting the car fixed for example they can be a very simple way to do this.

The loan process is simple with the lender providing a short term unsecured loan to be repaid by the borrower on a fixed date – usually the borrowers pay day. Often the lender will require some verification of income or employment such as pay slips or bank statements to show that you will be able to afford to repay the loan.

The traditional high street method is that the borrower visits the store and writes the lender a cheque for the loan + fees and then post dates it so that it can’t be cashed until their pay day. They are then given a cash loan. Ideally they then return to the store and pay back the loan in person, but if they don’t then the cheque is used so the lender can redeem the money.

In the modern online methods, borrowers complete the loan application online or by fax if documents need to be seen, and then the loan is paid directly into their bank account. The loan repayment and fees are then paid electronically from their bank account on the date specified in the agreement. Many online lenders don’t run credit checks or verify people’s income in the way the traditional high street stores do.

Due to the fact that these loans are extremely short term, the APR can be quite high even though the ‘fee’ seems quite reasonable to many people. If a £15 charge is made on a £100 two week long loan, the APR is actually 390% without compound interest. Lenders justify this high interest rate by saying that the processing costs them just as much as it would to process a long term large sum loan, but that they process extremely quickly allowing people to get access to the money sometimes within an hour of applying.

Review of Pay Day Loan Websites
Wonga.com