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Representative 79% APR

Representative Example: Borrowing: £1200 for 18 months, Total Repayable: £1843.68, Total Interest: £643.68, Interest Rate (Variable): 79%. Rates between 9.3% APR to Maximum 1721% APR

The Money Shop is a registered trading name of New Horizons Finance Limited, which is an Introducer Appointed Representative of Flux Funding Limited, who are a credit broker not a lender. Loan repayment terms are between 3 and 36 months.

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Payday loan lending, is it right for you?

Payday loans are a handy financial solution for anybody in need of quick cash. A speedy loan can help you in a situation where your money is limited. In fact, there are many options if you are seeking a speedy loan to help with short-term financial needs. While they can be excellent for helping you through difficult periods, you must know what to expect. This is where we come in to help with the information below.

What Is a Payday Loan?

Payday loans offer a quick and easy solution when a cash emergency arises, giving you access to funds swiftly. Payday loans are a type of short-term finance that is specifically designed to allow borrowers to access cash before their next pay day. This type of finance is usually offered by independent lenders as opposed to banks, and are available to apply for through The Money Shop.

When an unexpected expense pops up or you need some extra cash for an emergency, you might be considering a payday loan. At The Money Shop, our broker partner’s lenders offer payday loans from £50 to help you access money when you need it the most. If you are considering a payday loan, it is crucial you understand exactly what they are, how they work and if you are eligible.

All payday loan lenders operate in a similar way and the process for obtaining a payday loan is basically the same for all of them. You will need to provide your chosen lender with personal and financial information, and request a certain amount of cash. If you are eligible for a payday loan and your application is approved, the money is deposited into your account the same day. The interest rates are usually high due to the convenience of these loans and the APR will depend on how much you are borrowing and for how long. At the end of the loan term, the lender will take the repayment in full directly from your bank account.

Payday loan lenders use a variety of factors to decide the amount of credit a customer is able to borrow, including their ability to make the repayment. Most payday loan providers do not run a full credit check on borrowers straight away but will look at your current employment and earnings to decide if you can realistically make repayments. The application process for a payday loan is simple and fast, with an instant approval decision and funds released immediately, or within 24 hours depending on the lender. If you decide to go ahead with the loan, the lender will perform a full credit search before releasing the funds.

Payday loans should not be used regularly as they can be damaging to your credit score. When you borrow small amounts of money over long periods of time, this can bring your score down. Of course, you must factor in the risks of missing a payment. Lenders have their processes in place for those who miss payments. When you compare a loan, we recommend reviewing all the information available, especially the repayments section.

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Eligibility for Payday Loans

Before you can apply for a payday loan, you need to make sure you are eligible. Each lender will have slightly different criteria in place and it is essential you check this before making an application. Many adults in employment are eligible for a payday loan but some lenders ask for more from their borrowers, such as a minimum income. Meeting the eligibility criteria isn’t the only thing that matters when applying for a payday loan and even if you meet all the requirements, you could still be turned down. This is because lenders also look at your financial history, credit score and existing debts. The eligibility criteria for most payday loans are:

  • A steady income: when applying for a payday loan, you must be in a position to pay back the loan amount, as well as interest and fees. Payday loan lenders will only offer credit to individuals with a steady income from either full or part-time employment. Some lenders will also consider self-employed borrowers but you may have to provide evidence of earnings.

  • 18 or over: you must be over the age of 18 in order to apply for a payday loan via our partner’s panel of lenders. This requirement is in place to make sure that borrowers are in control of their own finances and responsible enough to make an informed decision about taking out a loan.

  • A UK resident: if a lender is based in the UK, the chances are they will only offer payday loans to those who live in England, Scotland, Wales or Northern Ireland. When they check your credit score, they will contact the Credit Reference Agencies, or CRAs, so you must have a UK address listed with these organisations. One way of ensuring your address is on file is to be on the electoral roll.

  • A UK bank account and debit card: payday loan lenders will not be able to provide finance to anyone who doesn’t have a UK bank account and debit card. This is because the loan amount is deposited directly into a bank account and repayments must be taken using your debit card details.

What can I use a payday loan for?

Once you have been given a payday loan, it is up to you what to do with it. Though it can be tempting to spend the cash for leisure, remember why you applied. You do not want to end up in a worse situation down the line where you haven’t paid that important bill and you’ve missed a payday loan repayment. Be mindful that when you borrow money from a lender, no matter the loan type, that money does not belong to you. Therefore, it needs to be repaid in full with interest charges, where applicable.

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Need to know facts

Payday loans can be quick and easy to access. However, there is still a lot of payday loan information that you may want to know - despite the simplicity of applying. Make sure you are aware of the following before making any application. When applying for a payday loan, here are our need to know facts:

The total amount you are able to borrow will vary between lenders. Our broker partner’s panel of lenders offer payday loans from £50 to £5,000, with instant decisions and same day pay-outs. It is important to remember the amount you can borrow will depend on your unique financial situation.

Just because lenders offer payday loans and longer-term loans up to £5,000 does not guarantee that you will be approved for that amount. They will look closely at your finances to determine how much you will be able to repay. When applying for a payday loan, you should never borrow more than you realistically need. This is because it is more challenging to be approved for a higher loan amount and over-borrowing will make repaying it more of a challenge. Work out exactly how much you need to cover your expenses and only apply for that amount.

Payday loans are a helpful solution in emergencies or unexpected situations. When you are suddenly hit with a one-off expense that you can’t afford at that moment in time, you could turn to a payday loan. Money borrowed from a payday loan can be spent on anything you want and there are not usually any limits on how you spend the cash. These types of short-term loans are a great to fall back on in times of need; for example, if your car won’t start or your boiler has stopped working in the middle of winter. You technically could use a payday loan for non-emergencies, such as a holiday or buying something new, but you should think carefully about whether this type of finance is the best option.

Payday loans have faced a lot of criticism from financial bodies over the years, many of whom were concerned that payday loans were too easy to obtain, resulting in unethical lending. To tackle this, legislation was put in place to protect borrowers including a limit on the fees that come with payday loans.

In 2014, the Financial Conduct Authority, or FCA, took over regulation of payday loans from the Office of Fair Trading, or OFT. The FCA introduced various rules to guarantee that payday loan providers are only lending to those who can actually afford it, and increase the awareness of the risks involved with this type of short-term loan. Regulations include limits on the number of rollovers, caps on interest and additional fees, and free debt advice for all borrowers.

When you apply for and receive a payday loan, it is important to keep in mind that these loans are essentially unsecured personal loans. This means you will naturally have to pay high-interest fees for people in desperate need of financial assistance before payday. We recommend using a payday loan only if you can afford to repay the amount. You should also be aware of the debt such loans can create in the long term if you fail to keep up your repayments.

Never just dive headfirst into a loan. Instead, we recommend comparing different options. You might think one loan is best for you, only to find a better deal elsewhere. Also, make sure you’re clued up on all the terms and conditions of the loan before agreeing to it. You should make clear notes of the repayment amounts for your own reference and take interest rates into account. When it comes to repaying the loan, you’ll have all the details to hand and will know what to expect and when.

Your credit score is what lenders will look at to determine how likely you are able to repay a payday loan. Short-term loans will affect your credit rating and this could be in a positive or negative way, depending on how you use them. If you take out a payday loan and make your repayments on time, it could improve your credit rating. However, if you miss repayments or default on the loan, your credit rating will drop.

Every payday loan you apply for will appear on a credit check and some lenders may view this as a sign you are struggling financially. Always remember that making an application for a payday loan will leave a mark on your credit report, even if you decide not to take the loan after all.

Payday lenders can charge interest rates as high as 780% (APR) in some countries. In the UK, laws regulate how much interest a payday provider can add to the overall loan debt. By law, interest rates are capped at 0.8% daily. However, it is important to carefully review the information you get when you apply for these loans to get an idea of what you will repay.

Never accept a loan if you cannot afford to make the payment back to the lender and keep interest rates in mind at all times. The last thing you want to do is apply for a loan and end up in more debt.

Before applying for a payday loan, you should be aware of how much it will cost you in the long run including all interest and additional fees for your chosen duration. Many online payday loan providers offer calculators to demonstrate exactly how much you can borrow and how much you will end up paying back. To help you understand the cost of a payday loan, here is an example:

  • Loan amount: £400
  • Loan duration: 30 days
  • Total interest: £96 – or £24 for every £100 borrowed
  • Total to pay back: £496

This example is based on 0.8% interest per day, which is the maximum amount payday loan lenders are allowed to charge. This is also an example of how much you would pay if you made your repayments on time. Here are some examples of how much you would pay if you have to pay late:
If you paid 30 days late:

  • Loan amount: £400
  • Total interest: £192
  • One-time late payment charge: £15
  • Interest on late payment fee: £3.60
  • Total to pay back: £610.60

If you paid 60 days late:

  • Loan amount: £400
  • Total interest: £288
  • One-time late payment charge: £15
  • Interest on late payment fee: £7.20

If you need short-term finance for an emergency or unexpected expense, a payday loan might be the best option for you. As long as you know how to protect yourself and avoid scammers, getting a short-term loan from a legitimate lender can be helpful during difficult times. Payday loans are often designed for borrowing for very short periods, such as several weeks. If you need a loan for a longer period or will not pay back your loan amount quickly, other short-term finance options might be better suited to you.

If you are struggling to make the repayments that you agreed with your payday loan provider, you must inform them as soon as possible when you miss a payment. Without informing your lender why you missed a payment, you will be charged a missed payment fee.

Instead, when you talk to your lender and explain why you cannot make a payment, a new payment agreement can often be made. There are many payment plans to help people who struggle with making payments or if unforeseen circumstances arise. Look at your agreement before signing up for a loan and read the information provided on missing payments.

Many people are cautious about using payday loans, and rightfully so. They can have huge interest rates, which can cause even more debt in the long term. It is, therefore, very important to assess your affordability before you apply for these types of loans. Because of their quick payout and easy accessibility, you can fall into the cycle of applying for and paying payday loans back. Therefore, it’s always a sensible idea to look at alternatives to such loans. A surprising number of short-term options can offer the same benefits as a payday loan.

Credit Union loans

Credit Union loans are often a solid alternative for those who want to avoid a payday loan. These loans offer a far lower interest rate than a payday loan and are designed for people that banks have already refused.

You will need to provide details and hit certain criteria to be eligible for a Credit Union loan. There are many Credit Unions across the country, and they are open to people looking for financial help. Sometimes, you will only be able to take out a loan if you have previously invested money into a savings account with a Credit Union.

Usually, you will be required to wait longer than you would for a payday loan if you apply for a Credit Union loan. Keep this in mind, alongside the qualifying criteria, to find more information about when visiting in person.

Social Fund budgeting loan

A budgeting loan is provided by the Department of Work and Pensions (DWP). These loans are interest-free but are only offered to people who are claiming particular benefits already. To qualify for such a loan, you must have received these benefits for at least 26 weeks. You will also be asked for information about what you plan to use the loan for, and you have to agree to the terms set out.

Cash advances

Some employers are open to offering their employees a cash advance when money is tight before the next payday. Whether you have a car repair bill looming or you need to settle short-term debt, a cash advance can be the perfect solution.

Of course, every employer has its own rules on such advances, which come down to discretion. Unlike a traditional loan, you won’t have to pay interest as the cash will be given directly by your employer. If you have a good relationship with your company, we recommend inquiring about a cash advance as an alternative.

Friends and family

Borrowing money from friends and family can cause complications in relationships, especially if you don’t pay it back. However, if you have a good relationship with a friend, there is no harm in borrowing money so long as you repay. Keep track of any repayments that you make and always inform the person if you cannot meet the set-up agreement.

Bank overdrafts

An authorised bank overdraft can be another good solution and alternative to a payday loan. If you have a good credit history and have not been in any unauthorised overdrafts with your bank, you will be able to borrow money in the form of an overdraft.

An overdraft is an amount of money that is accessible when your balance falls to £0. You must agree to the terms of the overdraft, which will include interest rates.

Credit cards

Credit cards can be another great alternative to that of a payday or speedy loan. Many credit cards today accept applications from people with bad credit. You can even get a cash advance when you apply for a credit card while waiting for the physical card. Like that of loans, we advise that you compare credit card types and review repayment information plus interest charges before signing up for one.

If you’re currently experiencing a cash-flow challenge, a payday loan could be a great option. However, you must consider affordability and repayments. We offer all the advice you need on speedy loans, how to get one and what to expect once you’ve received the cash. We offer the latest advice on payday loans and much more to help you work out what works best for you. We’re also clear on the implications such short-term lending can bring about and provide information on best loan practices.

Remember to only apply for the amount of money you need to borrow; when you choose to borrow more, you risk falling into more debt. When you take out a loan responsibly, you do not run risks of long-term financial strain. If a payday loan isn’t for you, there are many other options available – some of which we have detailed above. Our goal is to help you find a loan agreement that works for you without extending your debt even further.

When in doubt of the loan options or financial help you can receive, turn to The Money Shop experts who have all the information in one place!