Should you take out a payday loan to pay your rent?
The cost of living has risen over the past few years, with bills and other expenses experiencing astronomical growth as revenue levels remain stagnant.
Finding effective ways of financing various emergencies has become almost impossible to accomplish. Short term loans currently represent the best avenue one has of getting immediate funding when caught in dire straits.
Applying for a payday loan is an excellent option to consider when looking for ways to meet your rent. The trouble with the landlord can fracture a vital relationship that’s crucial to your peace of mind. Having to dodge in and out of your home to avoid confrontation can be nerve-racking, to say the least.
What you need to know about payday loans
Payday loans are short term loans that are taken out against your expected income. The loans are available to UK residents above the age of 18 with valid proof of income.
At the peak of its operations, the industry was worth approximately £2 billion, but increased regulation and stricter protocols have brought that number down to £200 million.
Payday loan applications are simple and straightforward, and online lenders are required to publish their loan details on at least one price comparison website.
Borrowers also need an active email address, bank account and debit card to receive the loan documents and money transfer. People with bad credit don’t have to worry about collateral, as credit history doesn’t influence a lender’s decision.
How do payday loans work?
The amounts given with payday loans vary from as low as £50 to as much as £1000 on average. Lenders primarily focus on your level of income when deciding on the maximum amount to offer. You must be able to definitively prove that you can afford to pay back the amount requested.
Once your loan has been approved, you’ll be notified and the money will be transferred to your bank account. Some online lenders approve successful applications in less than 30 minutes, making them great for dealing with emergencies like making the rent.
In most cases, the money is automatically repaid from your bank account through a continuous payment authority (CPA).
Is it safe to take a payday loan for your rent expenses?
The nature of payday loans is designed to cater to emergencies and other expenses that can’t be avoided. In a study conducted by the CMA, 53% of those surveyed said that they use payday loans to meet various living expenses. Some of the reasons you should consider a payday loan when you’re having trouble with the rent include:
High approval ratings
A major advantage of payday loans is the high approval ratings related to the service. Traditional loans involve a lot of red tape around the application process and qualification requirements, with numerous applicants denied the request each year. In 2020 alone, over 150, 000 businesses were denied loan requests, while one in five people were denied access to related financial services.
Payday loans are one of the few avenues left that offer a guaranteed solution for anyone with proof of income. Banks and credit unions are reducing the level of financial assistance available with their services and enhancing the criteria involved with qualifications. Payday loans have maintained the same criteria for qualification and a similar market reach even after the pandemic.
Payday loans are suitable for time-sensitive scenarios
If you’re thinking about using a payday loan to supplement your rent, chances are you need the money as soon as possible. Traditional institutes like banks can take days to consider a loan application, making them an unreliable source for emergency funding.
Online lenders offer same-day funding features with their services, allowing you to receive your money in the shortest period possible.
Interest rates are regulated and capped by the FCA
The high interest rates connected to short term loans have long been an unattractive feature for many borrowers. As of 2015, the FCA tightened its hold on the lending industry, ensuring that consumers aren’t taken advantage of by roaming interest rates.
Victims of unfair interest rates over the past five years can also sue for compensation thanks to the new regulations implemented by the FCA.
An interest cap of 0.8% has been placed on daily interest charges, while lenders aren’t allowed to charge more than £15 in default penalty fees. The new regulations also prohibit lenders from charging more than double the loan amount borrowed in overall charges. If you borrow a loan of £300, the final amount owed cannot pass the £600 mark.
Payday loans are a great choice when you need to address your rental needs immediately and don’t have time to go through a variety of options. As long as you have proof of income, getting financial assistance is guaranteed.
