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Pay It On Payday

There's a newish loan product about. It's only been around for five to ten years, depending on who you ask, and it's brought new opportunities for people with poor credit to get a loan. It's called a payday loan and UK consumers are beginning to flock to high street shops and websites to find one.

The main attraction is the lack of credit check. If you get turned down, it doesn't damage your credit rating. And even if your credit report is poor, that won't stop you from being accepted.

Getting one is simple. All you need is to be over 18 and to live and work in the UK and to be able to prove it. Some form of identification and a bank statement with proof of earnings for at least three months gets you past the first hurdle.

The thing is, this only works for people who want to borrow a small amount for a short time. Borrowings start at £50 and go to no more than £1,000. Lenders make their money from the fee they charge for the service. This is either a fixed fee or percentage. Either way, it adds up to an annual percentage rate of several hundred percent.

Payday loans have to be paid back by the next payday, so they're for two weeks or a month depending on your pay schedule. If you run short, you can extend the loan once or twice, but each time you'll have to pay the fee again, so you could end up repaying several times the original amount. Lenders won't be patient if you default, either. They'll get the collectors in pronto.

There are lots of reasons why a payday loan may seem like a good option. If you have an unexpected expense and know you're unlikely to get credit elsewhere, it may seem like a smart move. And it is - but only if you're sure you can pay it off. If you find yourself living from payday loan to payday loan, then the dominoes are bound to topple sooner or later, damaging your credit rating in the process.

Luckily, there are plenty of other loan and credit products on the market, like bank loans and unsecured loans of up to £25,000. There are even some that target people with poor credit, such as secured homeowner loans. Whichever option you take, you'll want to make sure you can keep up the repayments, so you can keep your credit rating and your home.