What is a payday loan?

A payday loan is typically a short-term loan that is offered in order to help the borrower meet an immediate or urgent financial shortfall. In general expectation is that the loan will be repaid in full (including interest and service fees) on the borrower’s next salary date, hence the name, payday loan.

An example of why you may need a payday loan is, if your car breaks down, you might find yourself short of the cash required to get it repaired and back on the road.

Payday loans are usually unsecured. This means that the borrower does not need to provide any security (assets) to obtain the loan. The result is that the lender charges a higher interest rate than a secured loan in order to cover the higher risk of the borrower defaulting.

Payday loans have gained massive popularity and publicity in the recent years. Loans of this type have been around for many years but recently there has been a boom with new and existing lenders providing their payday loan services online. With internet access becoming commonplace in most households, it means that borrowers do not have to leave the comfort of their own homes in order to apply for a payday loan.

There are many online payday lenders and it is hard to have a discussion about payday lending without mentioning one company in particular, Wonga.

Wonga is arguably one of the most progressive online lenders in the marketplace today. It was founded in the UK and was launched in 2007, soon becoming a household name and one of Britain’s largest providers of short-term loans. One of the main reasons why online payday loans became so popular is because there is often no paperwork, telephone calls or branch visits required to submit a loan application. Wonga in particular, rely on their automated systems to make their lending decisions and if the application is approved the money is usually deposited in to applicant’s bank account within minutes. Their service aims to be 100% digital and real-time.

Payday loans have several names and another common name is a “cash advance” loan. All payday loans fall under the umbrella of short-term loans.

If you are in debt and you can’t repay your payday loans then you can get help from this debt help organisation. 

Key features of a payday loan are:

  • They are typically unsecured.
  • They have a higher interest rate than secured loans.
  • They are short terms loans.
  • The borrower is expected to repay the loan on their next salary date.
  • The application process is generally quick, as is the decision of the lender.

See our other articles on where and how to obtain a payday loan.