Understanding payday loans
Payday loans are short-term loans intended to cover expenses until your next payday. They are often used by people facing urgent financial shortfalls, but they come with extremely high interest rates. Taking out a payday loan should usually be seen as a last resort as they carry high interest rates and usually adversely impact your credit score.
How it works
You borrow a small sum, typically to be repaid in full with interest by your next payday. There may be other ways to resolve your short-term financial problem, so consider alternatives before borrowing from a payday lender. Typically, you'll have up to a month to repay the borrowed amount, plus interest. The most common repayment method for a payday loan is through your bank debit card.
When obtaining the loan, you authorise the lender to withdraw the funds from your bank account. This is known as a continuous payment authority (CPA). If insufficient funds are available in your account on the agreed repayment date, the lender may repeatedly request your bank to withdraw all or part of the outstanding amount. Late payment fees will be applied.
Positives
Quick and easy access to cash, no credit checks in many cases.
Negatives
Extremely high interest rates, can quickly lead to a cycle of debt if not repaid promptly.
