What are Payday Loans?

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You may have heard the name ‘payday loans’ but may not really be sure of what they are. You may not even think it matters, but actually it is a really good idea to know a bit about every type of loan. This is because, when you do need money, it is important that you borrow in the best way for you. We will have different borrowing needs to each other and at different times, which means that there will not be one loan that fits all. Therefore, we need to know about all loans and then when we do need to borrow money, we can think about what we want from a loan and with our knowledge of loans, will be able to identify the loan that will be the best one for us. So, it is a good idea to know about the main features of each loan and when it might be a good idea to take when out.

Main Features of a Payday Loan

A payday loan has a few main differences which sets it apart from other types of loans. For example, you can normally only borrow relatively small amounts of money between £100 and £1,000. Most people are able to borrow even if they have a poor credit record. The loans can be arranged quickly, with some lenders being able to provide payments within a few hours. Some lenders will even be available on weekends and overnight in case money is needed outside of normally banking house. The loans have to be repaid quickly – normally the full repayment including interest and fees has to be repaid on the next day that you get paid.

When to Use One

So payday loans were designed to help out those people that could not borrow money elsewhere because their credit record was not very good. This means that they can be handy for anyone that does have a poor credit record. However, they are also designed to help put in emergencies and the money can usually be handed over really quickly. This means that even if you do not have a poor credit report, it might be handy to know that these loans can be arranged quickly in emergencies so could be useful then as well. They are for small amounts though and first time lenders may only be able to borrow a few hundred pounds. This is because a lender might want to make sure that the borrower is capable of repaying a small amount before they are willing to trust them with more. If this is the case, then it means that you will not be able to use the loan if you need a significant amount of money. The loans also need to be repaid as a lump sum and so it is really important to make sure that you will be able to afford to do this. Although the money will go out on your pay day, which might make you think that it will be easy to afford it, it is a good idea to check your bank balance to make sure that this will be possible. Make sure that you will be paid enough and that you will have enough money to cover the loan repayments as well as everything else that you will need to pay for as well. It may take a bit of working out, but it is worth it because if you do not manage the repayment there will be extra charges to pay and no one likes to have to pay anything more than absolutely necessary for things.

Is it Good to Worry About Credit Scoring?

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There are some people that worry about credit scoring and others that do not really think about it at all. You might wonder whether it is something that you should worry about. Firstly, it is important not to worry about things if you can help it. Worry causes stress which can cause illness Therefore if you are worried about something then make sure that you think about why you are worried and what you can do to fix it. With credit scoring it is useful to know why it is important and what you need to do to keep your credit score in good shape.

Why is Credit Scoring Important?

Credit scoring refers to the system that potential lenders, landlords, insurers etc use to judge your financial status. They all do it differently, but basically, they will look at your credit report and use that to decide whether they feel that you are trustworthy with regards to money. They will look at things like whether you have had loans before and how good you were at repaying them, whether you are making regular payments for things like contracts and bills and also what your salary is. This will then determine whether the decide to lend you money, let you take out an insurance policy with them or whether you can rent a home from them. This means that if you are interested in borrowing money in the future or renting a house etc. then it will be important to make sure that you have a credit report that is attractive.

How to get a Good Credit Score

It is not always that easy though. This is because all of those different people that are looking at your credit report, will be looking for different things. There is no standardised way of doing things which means that it can be difficult to predict exactly what you might need to do. However, there are some common sense things that you can try out which should help you. Firstly, make sure that you repay all of your loans on time and then potential lenders will see that can trust you to do the same thing if you borrow form them. Make sure that you do not have too many loans too as they may worry that if you have too many you will not be able to afford the repayments on them and an additional one. Also make sure that you make all the payments on your commitments such as insurance, utilities, mobile phone contracts etc as this will also be evidence that you can be trusted to make regular payments.

It is much better to be proactive and check your credit report and have a look what you think you might be able to do to be able to improve it. Also check that it is all correct as there may be errors on it. It is a good idea to think about what you might like to see on a good credit report and whether there are things you would change on yours. For example, you might feel that you need to pay off some loans or that you need to show more evidence of regular payments (which you could do by getting you name put on utility bills etc). If you can work on making positive changes, then there will be no need to worry about your credit score, but just to concentrate on improving it so that you will be able to make sure that you will be able to get a loan or rent a property in the future, if you need to.

Should I Borrow from the Place I do my Banking?

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If you want a loan, then you might think that that it will be best to go with the bank that you currently use. Although this might have some advantages, it is worth being aware of the advantages and disadvantages before you make up your mind.

Advantages of Borrowing from Your Bank

If you want to take out any new financial product with your current bank, then you will have some advantages. This is because they will already have your details, so you will not need to necessarily provide so much information and they will not need to do an ID check as they will have already done one. However, if you are taking out a loan, then it is very likely that they will do a credit check as your credit status may have changed since you took out other products with. By not having to have an ID check, it could make the application process quicker and easier for you.

You may be set up with online or telephone banking and this means that you might be able to manage your account easily in the same way that you do your others and you will not have to set up new passwords or learn a new system which could be very handy for you.

You may like to deal with a local branch and so if you have one with your local bank, then you will know where it is and what the staff are like and know that you will still be able to deal with them. However, there other banks that might have branches local to you as well.

You may think that as a customer, your bank is more likely to lend to you than other banks. However, it is very hard to know whether this will be the case.

You will know what your bank is like and what they are like to deal with and therefore you could potentially feel more confident dealing with them compared to banks that you do not know. You may worry that they might not have such good customer service or things like that. You could contact them before deciding though and see what they are like.

Disadvantages of Borrowing from Your Bank

If you just stick with your bank then you could be missing out on better products. You may find that there are other banks that have products which will better value for money than what your bank is offering and this means that you will be miss out on those better products if you do not look elsewhere. This could mean that you end up paying more money than necessary when you borrow money or you get less interest on your savings than you might be able to get elsewhere. Therefore, you could be missing out.

You may also find that there are banks which provide products which are more suitable for your needs than your current bank. They might even have better customer service and be more convenient to use as well. Until you look around and see what is available, you will not know whether what you have is good or not, compared to what else is available.

So, for the sake of convenience and familiarity you could end up getting worse value for money. You will have to decide whether you are happy with that or whether you want to go elsewhere. It is sensible to take a look at what is available and then you will be able to decide whether you feel that you will be able to borrow from your bank with confidence knowing that you are happy with the deal you are getting or whether you want to try elsewhere.

How Much Can I Borrow Using Overdrafts?

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If you need to borrow money, then it is very likely that you will have a specific amount in mind that you need. This can vary a lot between different people and different situations of course and it will be one factor in determining whether you will be able to use this particular way of borrowing.

How Much Can You Borrow?

There are lots of different banks that offer overdrafts and they will all have different ways to decide how much they will lend to you by way of an overdraft. Some will lend all customers the same amount, but it is more likely to be the case that there will be some that will let different customers have different amounts. This means that you will need to do some research to find out. It could be that a bank will do a credit check and then decide how much to let you borrow based on that. So, if they feel that they can trust you, they will lend you more money compared to if they feel that they cannot. Some may not lend to you at all, it will all depend on what determinants they have with regards to deciding if they feel they can trust you to repay or not really.

The amount that you can borrow may also be determined by your salary and it might be put up or down once you have the overdraft for a while depending on how you use it. It can therefore be a bit difficult to work it all out. It is probably a good idea to therefore contact the banks that you are thinking of using and then you will be able to ask them about how much they will be likely to let you borrow and whether that amount is likely to change. Then you will have a much better idea of whether it will be enough money for you.

Is it Worth Borrowing this Much?

But, before you rush in and start to borrow money, it is a good idea to make sure that you think about whether it is worth doing. Start by considering the cost of borrowing and whether it will be worth paying out that money. It is a good idea to find out how much interest you will be charged on the borrowing and calculate how much you would actually be paying out each month or year if you used an overdraft and that will allow you to think about whether you will feel that it will give you good value for money.

Also think about the amount of money and the fact that you will have to repay that much money. You need to consider how you will repay it and how quickly. The longer you leave the debt for, the more expensive it will be and paying all the interest payments will mean you have less money to actually repay it. Also, if you borrow a lot, it will be harder to repay and it could also be daunting to see that you owe that much and that stress will not be good for you either.

Having money available to you like this can also be very tempting. You might think that it is there for you spend and that you deserve to treat yourself. Then you will have the problem of having to repay it and it might be very hard to find the money and you will be paying out the interest too.

So, it is worth thinking hard about overdrafts, not only on how much you need to borrow but on whether you should be borrowing at all.

Should I Change Where I do my Banking?

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You may wonder whether you should be changing here you normally do your banking. This might be for a number of reasons, perhaps because of the cost or because you see other people changing and wonder whether there are advantages to it. There might be advantages but also there could be disadvantages and it is a good idea to have a good think about this before you decide whether to change banks.

Consider What your Need from a Bank

It is a good idea to start by thinking about what you need form a bank. We all have certain expectations with regards to banks and what services we expect them to provide for us. We also might have expectations with regards to how much they charge us when we borrow from them and how much they pay in interest on savings. It is also important to think about other things that you like and dislike about you bank. Perhaps they have a local branch that is convenient and nice staff or you wish you could be with a bank that had a local branch. You might prefer online banking and so it might be important that they offer that. It could be that it is the types of products that they offer that is more important to you. Think about what you are looking for and this will help you to be able to decide whether you should stick with the bank you are with or change banks.

See What Yours Offers

You may be aware of what your bank offers but you may not. It is worth having a think about what they do have and even looking on their website or in branch to see. Then you will be more aware of whether they are offering what you are looking for. It might be that they have products that you were not aware of or services that you did not know they offered and it might be that you will be more likely to stick with them as a result of finding this out.

Compare with Others

It can be good though to have a look at what other banks are offering. You could find that they offer more of what you want and therefore you might be better of switching. However, it could be that you will be better off just switching some products. This is because banks might have good savings rates, for example, but their loans might be expensive. Therefore, it might be a good idea to switch your savings over but to leave your loans where they are or move them to somewhere else. Keeping everything with the same bank might be convenient but it is not always cost effective and so it could be wise to make sure that you are checking regularly to see whether it might be more cost effective for you to move some of your accounts or all of them elsewhere. Moving some accounts will be easier than others and you might be reluctant to move a current account, for example, you may feel it will be trickier to move a current account and switch over where all your payments leave and come in to compared with moving some savings which could be simpler.

So, there will be pros and cons to switching banks and it means that you will need to have a think about whether it might be worth switching or better not to. It is a good idea to think about the advantages and disadvantages and especially the financial consequences as to whether you will be able to save money or whether you might be able to get more interest on your savings. IT can be with the hassle of moving if the gains financially are significant.