Payday loans can be a handy way to borrow but if you do not know much about them you may wonder whether they are suitable for specific needs. If you have school uniform to buy then you may wonder whether this will be the right loan to use. It is good to understand how it works and therefore whether it will be suitable for you to use for this purpose.
Do I need to use it for a specific purpose?
For some loans you have to use them for a specific purpose. For a student loan you have to use it for university or a mortgage has to be used to purchase a house. However, a payday loan does not specify its purpose. Therefore, it can be used for anything. However, the terms of the loan are quite different to those for many other loans and therefore this means that you may find that it is not suitable for all purposes.
How much can I borrow?
Firstly, you need to be aware that you cannot borrow more than £1,000 in most cases. Although this would normally be enough for school uniform it will depend on how much you are buying. If you have a lot of children, they need uniform and PE kit or they are going to a school with a very expensive uniform then you may need a considerable amount of money. Some schools need coats, blazers, jumpers, shirts, ties, polo shirts, trousers/skirts. Shorts and socks as well as shoes and PE kits and this can all add up especially if you are buying all of the items at once.
A payday ender may also restrict how much they will lend you as well. Often, with a first-time borrower, they will only lend a small amount as they will want to make sure that you are capable of repaying it before they trust you with more money. You will need to directly ask the lender about this as it tends not to be something that they make clear on their website.
How do repayments work?
It is also worth understanding how repayments work. With a payday loan there is normally one repayment which takes place on the day that you get paid. You will need to repay the full amount that you borrow as well as the interest. It is important to make sure that you will be able to manage this repayment. It may be that you need to borrow money because you cannot afford to pay for the uniform all at once. This means that it would perhaps be better to consider a different type of loan which has more repayments so that you can spread the cost. If you do decide to go with the payday loan then it is important that you are aware of how much you will need to repay and that you calculate whether you can afford it. You will need to think about how you will afford the payment, which should come out of your salary, as well as all of the other things that you will need to pay for as well. It can be tricky to work this out, but it is worth it as it should allow you to be confident when you take out the loan, that you will be able to afford it.
How does the cost compare?
It is worth comparing the cost of a payday loan with other forms of lending to see whether you will be better off using a different method. Many people might compare a credit card or overdraft as they tend to lend similar amounts of money to a payday loan. These are hard to calculate the cost of though. Although they have an interest rate you can compare, you will not have to repay them within a certain time. This means that you will have more flexibility with repayments, but the cost will add up as you will be charged interest for every day that your loan is outstanding. It is worth trying to guess how long you might have the loan for and see how the cost compares.
Will I need a credit check?
If you have a poor credit record then you may worry that having a credit check could mean that you will be turned down for a loan. With a payday loan there is no credit check and therefore you will not have to worry about this. You will be able to borrow the money even if you have a poor credit record and so you will not need to worry. It is worth noting though that even if you have a good credit score, there is nothing to stop you using a payday loan, although you will have more other lending options to consider as well.