Short payday loans can be a great way to purchase a necessary item that requires a few months of your salary savings. On the other hand, taking out a long-term loan can prove to be an encumbrance if you cannot come up with the repayments each month. Do not take out any kind of short payday loans without first understanding all the terms and conditions. Always make sure that the lender clarifies all of your questions before taking out the payday loan.
What Is a Payday Loan?
A payday loan is a short-term loan that is provided by a loan lender with repayments scheduled for the day you receive your salary. The total amount of the loan is credited into your bank account instantly as soon as you meet the lender’s requirements. The loan provider will let you choose the amount of the loan and schedule the repayment installments based on your preferences. Once you have made your choice on the amount of the loan and the number of installments, you cannot change your mind.
The Cost of Short Payday Loans
The cost of a short payday loan from official loan providers is charged in the form of interest on the repayments made against the loan. According to the Financial Conduct Authority (FCA), there are limits to how much interest can be charged by a loan provider in the United Kingdom. The limit of interest for a loan spread out over a period of 30 days is £24 for every £100 borrowed. That means you can expect to pay £240 in interest for a loan worth £1,000 over a period of thirty days.
People who fail to make the repayments on time can be charged £15 in addition to the interest incurred on the principal amount. The total cost cap on the amount that a lender must pay back on a loan is 100%. This means that you will never have to pay a total amount of more than double the principal amount of your loan.
Authorizing Recurring Payments
A loan provider will only process your loan if you agree to set up a continuous payment authority. A continuous payment authority allows the loan provider to collect monthly recurring payments based on the agreed-upon schedule. The loan provider will let you know exactly which date of each month they will conduct the transaction from your bank account or debit card. Always make sure that you have enough money set aside to pay your monthly bills and expenses before taking out a loan of a large amount.
If you do not exercise the necessary caution there is a possibility that you might exceed your overdraft limit. You might have to pay extra bank charges and fees if you exceed your overdraft limit. You can choose to cancel the continuous payment authority of the loan provider from your bank, but you will still have to pay back the loan. A direct debit is another way to make the repayments of a short payday loan.