If you haven’t used a payday loan, you’ve probably heard of them. Used by those who need some money, fast, to pay off a forgotten bill or an unexpected expense, payday loans seem like a lifeline, but can be a way to sink into more debt.
If you’re an NHS or public sector worker looking for a fair, affordable short-term loan, then contact us at Salad Money, or keep reading to find out more about payday loans.
What is a payday loan?
Payday loans, also known as short-term loans, are a way to borrow money when you need a quick-fire cash injection. They are often a small amount of money in comparison to other types of loan. So, for instance, you may take a payday loan between £100 - £1000 to tide you over for a few months or less. Once you take out a payday loan, you will have to pay back the balance plus interest.
Often they are used for sudden, unexpected costs you can’t pay for out of your own salary or savings. This could be anything from an emergency boiler repair to fixing an issue with your car.
Most of the time, you will have to allow the loan company to take payment from your debit card on the day your next salary payment is due. However, some lenders will let you pay them back over a longer period of time – often up to six months.
Payday loans tend to be easier to get than other loans, but interest rates can be a lot higher than other forms of credit.
Do payday loans hurt your credit?
Potentially, yes, if accessing your credit file to make an assessment. .
The issue is, many loans are given irresponsibly to those who will never be able to repay them. So missing a payment or incurring late payments will naturally harm your credit score. To avoid this, look for lenders like Salad Money who use Open Banking to assess your financial situation - no need for a credit score at all!
Some payday loan firms will claim they can have a positive effect. And if you pay your loans back on time and in full, it can show you are trustworthy and responsible.
However, even if paid back on time, payday loans can impact your ability to get a mortgage. Some mortgage lenders state they simply won’t accept any applications from those who have used payday loans in the past, and they can easily find this out just by looking at your credit file.
Even those companies who won’t be as blunt about their stance still behave in a similar way. This is simply because they will look at the presence of a payday loan on the credit record of an applicant and note it as the existence of an underlying issue with that individual’s ability to manage their personal finances.
What happens if you can't pay back a payday loan?
A large risk for those who fail to pay back their loans is getting trapped into a cycle of debt. This could be that you get a loan because you're low on funds, but because you’re paying back that loan with a lot of interest, you just struggle to pay it back at all and fall further into debt.
And when you consider how high rates are for the average payday loan – which usually sits anywhere above 500% APR – you can really find yourself in a bad situation if you don't manage your finances carefully.
Don’t forget, interest is calculated as a percentage of the amount you borrow, and for payday loans it is often charged daily. So if you take a large loan, and take a long time to pay it back, you could end up paying more than the loan was worth in interest.
If you can’t seem to find a way to clear your debt, it’s really important to go to a free, independent expert for advice. Debt charities like the National Debt Line or StepChange can offer guidance and solutions, as does our blog on debt and mental health which can be. found in our news section.
If you do find yourself unable to pay back your loan on time, contact the lender immediately. Always tell your lender as soon as you know you're not going to have the money. Honesty is the best policy. Be truthful about your situation and answer their questions about income and expenditure.
Lenders will always look to find a way to make sure they get paid. So if you communicate amicably, they should then offer you a fair way to repay their money through different alternatives such as a structured repayment plan, payment holidays and the freezing of interest and charges.
How to tell if a payday loan is bad
There are a lot of online companies which will offer you a payday loan, but before applying you should always make sure the company is registered with the FCA. It's crucial to do this as some payday lenders can operate in an unregulated and illegal way.
Legitimate lenders will always do some kind of credit check to make sure that you can repay them. If they fail to do this, avoid taking a loan from that company. At Salad Money, we use open banking, rather than a traditional credit check, to ensure that you will be able to pay off your loan. This takes into account your current financial situation, rather than the limited information available from a credit check.
And avoid loan sharks at all costs. The clue is in the name – they're unlicensed, they often break the law, and they will use any means necessary to get their money repaid – they are sharks.
Just remember, getting a payday loan isn’t something to be done lightly unless you are 100% certain you can afford to pay it back.
And before you make that final decision, make sure you read the terms and conditions carefully, stick to a budget, and be certain you’ll have the right money ready on the repayment date.
Good alternatives to payday loans
There are some alternatives to a payday loan. For instance, you can:
• Borrow from friends or family
• Cut back other costs
• Sell something you own
• Speak with your existing lenders if you think you can’t repay them on time
• Consider another form of credit with a low limit, such as a credit card, personal loan, or arranged bank overdraft
• However, if you work for the NHS, you can come to Salad Money!
At Salad Money we are committed to offering fair lending for the NHS and public sector. So, if you have been employed by the NHS or in the public sector for 3 months or longer, earn over £1100 per month, and have online banking, you are eligible to apply for a loan with us.
You also need online banking to apply because we use secure open banking technology to make a decision based on your current financial situation (your last three months of transactions). It checks for repeated missed direct debits, high percentages of salary spent on gambling, debt repayments and other potentially risky outgoings. This lets us know if you can afford to take out a loan, so that we don’t put you in a worse position than when you came to us.
We have an online application which takes around 10-15 minutes to complete. Then a decision is usually made within an hour or so. If you’re accepted the money goes into your account the morning after you sign our agreement.
Apply now and put in the organisation you work for; you will be taken to a loan calculator that will show you exactly what repayments you would be making etc – you don't even need to give us any personal details at this stage.
We offer this service because we are there to help NHS and public sector employees. As a for-profit social enterprise and the first truly responsible workforce lender, we put our social objectives as our greatest priority.
This means, fairness, equality and providing affordable credit for NHS and public sector workers outweighs our need to ever make any kind of profit.
So, if you’re a worker in the NHS or public sector and in need of a short-term loan, what are you waiting for? Check out Salad Money today!