Most people struggle to make it to the end of the month, financially, so the idea of instant payday loans is a great one for some. It's not something to rely on every month but for those odd-times when you get an inflated bill that you weren't expecting or there are a few too many school trips to pay for, it can be a god-send.
Thankfully there are many lenders willing to give you a certain amount of money, from around £100-1000, as a very short-term loan until your next pay day, when you'd repay it all immediately and the charges on-top. The charges have very high APR rates but over a short period, let's say on a £100 loan it only amounts to around £115-125 you'd pay back in total. If it's still a struggle to pay the whole amount back then you can ask for an extension but the charges would soon mount up. The idea of these types of loans is to protect people from loan sharks and is an easy way to get money really quickly in a short space of time.
It's important to not borrow consecutively as this can land you in more debt than what the original amount was worth, but as there are around 1.2 million people that take out these short-term loans and it's easily the fastest, most efficient and cheapest (compared to a bank overdraft fee) way of getting hold of credit. There is a downside to the loans, which is that if it's left to roll-over to the next month it can quickly turn into debt that is almost impossible to pay back.
However, with long-term loans being so difficult to get hold of these days, thanks to the economic crisis and the banks being thoroughly strict, it is one of the only ways to get credit, albeit a short-term loan and low amounts. The banks hit back by saying they can offer short term advances or extensions of overdrafts to allow people to have a little more cash per month. At the moment, though, banks make it difficult for people to have access to the cash and payday loans are one of the only legal ways to get hold of credit on the same day (sometimes within an hour).
The British Bankers' Association (BBA) has acknowledged that the short-term lenders do their utmost to ensure that people can and will have the funds to pay back the loan, or it will be a travesty if they lend to people that can't. The do say that these types of loans should only be used for those that have no other option to get hold of money and that they can definitely clear the debt in full when they receive their next pay check.
As with any financial borrowing, it's important to assess the situation you're in, make allowances for any further and future borrowing and make sure that they are only used as one-off loans, not a consecutive loan every month. The interest of payday loans is high for a reason as there are risks involved for the company but if regular loans are taken there is more of a risk for the borrower.
