PERSONAL FINANCE BLOG

Money shouldn´t stop making your plans come true. Learn how personal loans can help you!
How To Find A Bad Credit Payday Loan
9 Sep 2018

How To Find A Bad Credit Payday Loan

In this piece, we’re going to delve into how you can find a bad credit payday loan that works for you. These types of loans are often misunderstood. Not least when matters are further complicated by the huge number of providers you will have to consider.

However, before we explore in detail where you can find a bad credit payday loan, it’s important to think about what these financial products are and what they should be used for. This will ensure that you are only on the hunt for bad credit payday loans if they are genuinely suitable products for your specific needs.

To try and determine the circumstances for which bad credit payday loans may be suitable, let’s imagine a scenario that will sound familiar to thousands of people living in the UK.

  • You do everything right. You go through your finances with a fine-tooth comb, assess your salary for the month and then create a budget to match. You even set aside a small amount of money for the month for savings. Your budget may be tight, but it’s managed, and you know what to expect from the month to come.
  • Then, halfway through the month, catastrophe strikes. Your car needs a new clutch; a lens in your glasses breaks; or neighbourhood kids accidentally smash a window in your property. Essentially, an event that requires an immediate expenditure takes place, and you have to find the funds to cover it.
  • Which, of course, you can’t. Even if you drain the small amount you set aside as savings, you’re still short on the cash you need to take care of the immediate expense that has befallen you.

Sadly, the situation as described above happens. You can do everything as you should, carefully budget and plan and monitor your outgoings to the nth degree. Then, however, something happens to throw your finances into disarray.

It’s at this point that many people begin to consider options such as borrowing from friends or family, or perhaps using an emergency credit card to cover their expenses. However…

  • What if you cannot borrow from friends or family? After all, few of us feel comfortable having to ask someone we care about for money, especially if we know they are not especially flush with cash in their own right.
  • What if you don’t have an emergency credit card as, due to past financial misfortune, your credit history has been damaged?

If you are facing an unexpected expense with the two issues as described above influencing your decision-making, then it can feel like you’re stuck. You can’t apply for a new credit card, because there’s no guarantee you will be accepted and, besides, the process for an application and the card to be received is simply too long. You can’t ask a conventional high street bank for a loan or overdraft either, as your less-than-ideal credit history precedes you, and you know they will say no. You can’t ask the people in your life to help cover the expense either… so what can you do?

Thankfully, there is a solution to the unpleasant situation as described above: bad credit payday loans.

What are bad credit payday loans?

The answer to this question is found in the term “bad credit payday loans” itself, for example:

  • “Bad credit” – i.e. this is a financial product that is suitable for people with a poor credit history, potentially even if you have CCJs or active defaults.
  • Payday loans” – a specific kind of loan product that is designed to be repaid very quickly. While most conventional loans are repaid over the course of one to five years, a payday loan will be repaid – usually – within one month of it being borrowed.

How do bad credit payday loans work?

Firstly, the “bad credit” element of this kind of loan just means that the company providing the payday loan is relaxed in terms of their acceptance criteria. There are countless payday loan companies out there, and many will accept applications from people with poor credit scores, defaults, and – in some cases – even CCJs.

Secondly, we’ll examine how the payday loan element works by adding some extra detail to the example we opened this piece with:

  • You are paid on the first of the month, and this is when you sit down to compile your budget for the forthcoming four weeks.
  • You experience the event that leads to an unexpected expense on the 15th of the month.
  • This means that you will not be paid for another two weeks, but the unexpected expense needs to be met far sooner than that.
  • So, you can apply for a bad credit payday loan to – for want of a better term – “tide you over”.
  • You receive the funds in your account from the payday loan on the 17th.
  • You will then pay back the loan on the first of the next month, when you receive your salary again. So if you receive your payday loan on June 17th, you will pay it back with your wages from July 1st.

This is just an example, but it makes the point: payday loans are only meant for a very short period of time. They are not designed to be a long-term financial fix, nor are they designed to be repaid in fixed monthly installments. Put simply, you borrow an amount of money, and you pay back that money (plus interest and any fees) as soon as you possibly can.

It is incredibly important to understand how payday loans work prior to applying for one. These products are designed to be used in specific circumstances; for unexpected expenses that you cannot cover with your usual budget. Here’s what you shouldn’t use a payday loan for:

  • To provide extra spending money for non-essentials
  • To supplement your budget on a regular basis
  • To pay expected bills and expenses; for example, it is inadvisable to know that you will have to pay your TV licence and decide to use a payday loan to cover this expense.

One of the reasons it’s important to understand what bad credit payday loans are for is due to the misinformation that surrounds this kind of financial product. Over recent years, there have been stories about the horrors of the payday loan industry, the high interest rates, and how the industry can trap people in a cycle of borrowing. While these things have an element of truth to them, it’s important to understand that these issues only develop when payday loans are misused by the customer (i.e. the customer borrows to cover a general expense or just for extra spending money) or the company (i.e. when the provider does not conduct proper financial checks that the borrower can afford to repay the loan).

Away from the misleading headlines, the bad credit payday loan industry is actually an essential one. It provides an option to cover expenses when conventional means – such as regular borrowing from high street banks – are not an option. It is important that you take out a bad credit payday loan with the full knowledge of what you are doing, how the loan works, and what you need to do in terms of paying it back as soon as possible.

Why do companies offer bad credit payday loans?

This is a question many people find themselves asking when dealing with an unexpected expense. After all, if conventional lenders – such as high street banks – refuse to provide loans or overdrafts to people with poor credit histories, why do other providers decide to offer these products?

Firstly, there is a definite need for these kinds of products. As discussed, many borrowing options are not available to people with poor credit histories. This means that these people do need a way of borrowing money at short notice; the rules of supply and demand thus dictate that there has to be an industry to assist these people.

Secondly, there is a simple financial reason for companies to offer bad credit payday loan offers: they are lucrative. Bad credit payday loans are not offered for free. You will usually be charged a high level of interest for very short-term borrowing; you may even be subject to an arrangement fee. This means that, for the providers, providing short-term loans can be incredibly financially beneficial. A £100 loan provided for three weeks, for example, could – after fees and interest – see a provider receive £175 back. That’s a £75 profit in just three weeks.

It is worth noting that it is not just profiteering that leads to the high interest rates for companies who choose to provide bad credit payday loans. By offering financial products to people with poor financial histories, these companies are taking a big risk. The high interest rates are there to offset some of this risk and ensure that the companies can still offer their products even in the event of defaults from some customers.

So while it may seem odd that many providers are willing to offer financial products to customers that conventional lenders dismiss, the reasoning – and the financial data – actually make perfect sense.

Now that you have a clear idea of what bad credit payday loans are for and why they are available, we can finally face our titular question…

How do you find a bad credit payday loan?

Realistically, you are unlikely to have too many problems finding a bad credit payday loan. While the industry is not as large as it once was, there are still plenty of providers that offer loan products in this field.

At this point, we have to mention that you can compare bad credit payday loans right here at Bonsai Finance. With our comparison tool, you’ll be able to look through all the available bad credit payday loan firms and the short-term loans they are currently offering, so you can find the loan that is suitable for you.

Our comparisons will cover the big-name lenders in the bad credit payday loan industry for you, so you don’t need to check them individually. This helps to save you time and ensures that you will be able to find the right provider for your needs as quickly and as simply as you possibly can.

How do you choose the right bad credit payday loan provider for you?

First and foremost, it is important to note that when you use the Bonsai Finance comparison, you will only be provided with information from reputable, regulated companies. This ensures you can browse with complete confidence.

In this situation – when you already know a company is reliable thanks to using our comparison tool to find them – you really should focus on the loan rather than the company. The company is ultimately irrelevant; what matters is the product they are providing. You need to go through and take note of the following information about the loans that each company has available:

  • The duration of the loan; i.e. how quickly you will be expected to pay it back
  • The interest rate and, if applicable, any fees that may be applied
  • The possible charges if you don’t pay the loan back at the agreed time. Obviously, this is a scenario you will hopefully avoid, but payday loans can be expensive if they are not paid back on the agreed date. You should therefore hope for the best but prepare for the worst. Ensure you know exactly what you would be liable for, financially speaking, if you fail to meet your repayment date.
  • Any additional terms and conditions that you may be subject to. For example, there is little point applying to a bad credit payday loan company that stipulates it does not accept applications from people with CCJs if you know there is a CCJ on your credit file.

The above information is far more important than the company name to helping you decide which company you apply with. By ensuring you examine the loans available rather than the actual provider, you can be sure you are examining the right areas to allow you to make a well-informed application.

In conclusion

Keeping the information above in mind ensures that when you head to the Bonsai Finance comparison tool to examine the various loans available, you know exactly what a bad credit loan is suitable for and how the whole process works. This, in turn, allows you to make the best possible choices for your personal financial situation.