Payday loan applications are like any other applications for credit. As with credit cards, store cards or mobile phone contracts, payday lenders require lots of personal details and use this to work out whether you can repay on time.
Here are 5 things to be aware of before applying for a payday loan:
All payday lenders will use one of three main credit reference agencies: Experian, Equifax or Call Credit. These agencies collect information about your financial commitments from all lenders and put the information together as a score. The exact scoring formula is never easy to understand but whats important is that even just applying for a payday loan can have a negative effect. Other lenders might see an application for a payday loan as someone in financial peril.
Payday loans are some of the most expensive forms of credit available. Even with the recent government clamp down on interest rates and charges, payday loans can costs a lot, especially if you use them regularly. You should always consider other forms of credit on both a total cost and an annual percentage AER basis.
Be careful of hidden charges
Always read the small print, especially when it comes to fees. Not all payday loan companies have the same fee system. Do you research and don’t rush. 10 minutes spared carefully reading the small print might save £10s or even £100s of pounds. Ask yourself hypothetical questions such as ‘what happens if I repay early?’
Don’t use pay day loans to repay other loans, or even worse, repay other payday loans
It may NOT seem obvious but using one expensive loan to repay another expensive loan really is a case of 1+1=3… for the lender. Einstein once famously said
“compound interest is the 8th wonder of the world.
He who understands it, earns it.
He who does not, pays it”.
And with pay day loan rates being several hundred % annually, this can quickly spiral.
Be careful with your personal data when applying
The new GDPR rules around data protection certainly improve the way our data is handled by companies but you should always take precautions to make sure your data doesn’t fall into the wrong hands. Ensure that websites are secure (there should be a padlock symbol or green tick on or near the address bar. Webpages should start HTTPS (not the plain old HTTP). S means secure. If you really want to be cautious, you can request at any time for companies and websites to remove any of your data.