Payday loans are called many different names by different people. For example some people call payday loans emergency loans, short-term loans, urgent loans, immediate loans, instant loans or quick loans. It doesn’t matter which name we give to a payday loan; it is a small and unsecured loan from a payday lender. The average amount of money a payday lender will loan you is between 100 pounds and 1000 pounds. A payday loan is usually used for emergency money needs.
What is an unsecured loan?
Payday loans are unsecured loans and this means that the payday lender does not ask for any security in exchange for the risk he takes in giving you a loan. When we talk about “security” regarding loans it means, for example, when you take out a mortgage to buy a home but the home remains in the bank’s name (the bank keeps the title deeds to the property) until you have paid off the mortgage in full.
Payday loans are available on the high street in the UK and from websites on the internet. It is usually easy to get a loan from a payday lender but interest rates are normally higher than most other forms of loans. Interest rates are higher on payday loans because they are offered unsecured which means that the lender takes a risk lending the money. If the loan is paid back on time and it is not rolled over the interest rate is usually reasonable but it is when the loan is not paid back on time that the interest rate can spiral out of control and become problematic.
When borrowing money using a payday loan the payday lender should, according to rules and regulations governing the industry, make sure you understand that the loan is simply from one payday to the next payday. Should you need to borrow money for longer than a month you should look at alternative ways of borrowing money. There are cheaper ways of borrowing money. If you have an emergency and need an emergency loan you may have to make use of a loan from a payday lender. In this case make sure you choose a registered and transparent payday lender! It is easy to be duped by unregistered and unscrupulous money lenders but things will unravel quickly if you find it difficult to pay back your loan on your following payday.
Registered payday lenders are usually sympathetic so should you find it difficult to pay back your short term loan on time you should contact the lender and explain your situation. The lender may arrange that you can roll over your loan and pay it back the following month. You will have to pay extra on the compounded interest but at least you may be given extra time if you have chosen the correct payday lender. As with any financial difficult you find yourself in, don’t try to hide from people to whom you owe money, discuss your problem with them and keep them posted as to your situation.