What is Payday Loan or Cash Advance?
A Payday Loan or Cash Advance loan is a type of short-term unsecured loan which is made available to an individual irrespective of the fact that repayment of loan is associated to their (borrower's) payday. In other words, Payday Loan is the minutest category of loans offered in the UK and these loans are used by individuals to pay off minor unpredicted costs and expenses. These loans are usually taken for a small time period and are generally repaid or squared off within a few days/week or once the individual gets his/her pay i.e. on their next payday. In the recent years, there has been a huge demand for Payday loans and they have immensely gained popularity all through the UK. The prime reason of this popularity is the flexibility attached to Payday loans i.e. it is possible to borrow in smaller amounts. Historically, before Payday loans were made available to citizens of the UK, the only option available for the UK citizens was to arrange for a bank overdraft or file for an application for a loan amount that was higher than the amount actually needed.
Reasons for using Payday Loans
There are numerous reasons why UK citizens turn to payday loans – few of the reasons are: exceeding the spending limit between pay cheques, sudden expenses such as a vehicle repair bill or any miscellaneous expense which turn out to be an unexpected cost. Whatsoever the motive be behind taking a Payday Loan, we help our client by making the application process easy and quick. Depending on the requirement of an individual and his/her paying capacity the loan limit and borrowing terms may vary. For example, certain payday lenders might propose a term period of up-to 3 months. Usually most lenders in the UK permit their customers to borrow money from a range of £50 – £3,000, however, the average value of disbursing a Payday Loan is ~£300 per person in the UK. In contract to the usual kinds of loans, a Payday Loan will normally comprise of a web-based online application process. Because of the nature of this loan type, an individual is free from multiple face to face meeting – all this is not required when filing the online loan form.
Payday loans provides much more flexibility as compared to the various borrowing alternatives that exist in the market. An individual has the option to borrow the specific amount of money that is required by him/her for a precise duration – this is an opportunity that many other UK lenders and high street banks do not offer. In excess of ~8.0 million Payday loans are taken each year with ¾ or 75% of people using the loan amount to meet their unexpected expenses such as a vehicle repair bills etc. On an average, the amount usually individual tend to borrow range between £250 – £270.
Payday loan and usage
The sanctioned loan amount, under Payday Loan, can be used for any purpose and there is no restriction on the usage of this loan amount. Few of the multiple reasons as to why an individual might opt for are Payday loan are:
- Special occasions such as wedding etc.
- Vehicle repairs
- Home improvement
- Unexpected Bills
- Pay-off existing debt
How to Apply for Payday Loans - Documents Required
The following information needs to be provided while applying for a Payday loan:
- Proof of address and related information – As per the fraud and anti-money laundering regulations in the UK, an individual is required to provide his/her address details to make sure that the credit or loan amount is not processed under somebody else’s name. This detail also ensures that the selected personal bank account of an individual ties with the address details provided by an individual.
- Details of the bank account – With the availability of online banking most of the payment processing is done online. This means the loan amount can be directly sent into an individual’s personal bank account money once his/her loan application is approved. The loan process for Payday loan is made quick as the borrower might require the funds immediately to meet his/her current obligations.
- Age proof and minimum requirement – The bare minimum age limit for a person to be eligible for Payday loan is 18 years
- Employment details and income/salary proof – The salary details will help the lender understand the monthly payment capacity of an individual and provide insights into how much he/she can realistically afford. There might be instances where a lender realises that it might be difficult for an individual to make to monthly repayments or by doing so might push him/her into financial difficulty. In such cases can individual can be offered a different borrowing solutions that may perhaps be of interest to the borrower
Paying back a Payday loan
It is imperative to note that the amount given back to the lender will also include the interest component. A common way to pay back the Payday loan amount is via an individual’s bank card. As per the continuous payment authority (CPA), an individual permits the lender to take the loan amount from his/her bank account. In case an individual doesn’t have sufficient balance at the bank or money account to repay the loan amount as on the agreed date, the lender can ask the bank to make part payment of the money – in such a scenario additional charges are added for late payment. Starting 2 January 2015, if an individual takes a 30 day loan and repays it on time he/she will not be charged in excess of £24 in fees. However, if an individual defaults on the loan amount a lender can levy a default fee of £15.
Payday refund and getting back the tax deducted
If an individual has received a Payday loan refund ever since April 2016 and if tax was deducted then it is possible to get back a tax deducted. Some lenders do not deduct any tax, leave it to the individual to deal with the tax authorities. However, many deduct tax at a basic rate of 20% from the 8% interest (this is treated as interest received on savings) and send the taxable amount to HM Revenue and Customs (HMRC). Starting April 2016, an individual is allowed to earn £1,000 as savings interest without paying tax on it.
The easiest way to get back a Payday loan refund is by applying online or completing an R40 form and sending it to HMRC. An individual has to apply separately for each year. For compensation received prior to April 2016, an individual can only get a refund if he/she wasn’t a tax payer. To get a refund, he/she too has to complete the R40 form.