Payday loans gained popularity when online lending was introduced. Flexible interest rates and a no credit check facility are two prominent features that enabled these loans to gather pace. Aimed at subprime borrowers, these loans carry exorbitant interest rates. Financial experts caution people when using payday loans in Ireland.
Payday loans are deemed dangerous because they are paid off in fell one swoop on the day after your payday. Seemingly affordable loans have the potential to trap you into an ongoing cycle of debt because you might run out of money to meet essential expenses after discharging the debt. If it happens, you will continue to borrow more and more money to keep your body and soul together.
Payday lending has evolved much after a barrage of complaints made against lending practices that posed a threat to credulous subprime borrowers who were in urgent need of money and had been repudiated elsewhere. Now, no lender is authorized to charge more than 0.8% per day interest. In spite of the cap on interest rates, these loans could be exorbitant due to processing fees and associated charges. Fees vary by lender, so different annual percentage rates will be set by different lenders.
Almost all small emergency loans are expensive, but payday loans involve a very high risk. You should never be cautious about using these loans. Some borrowers prefer loans for bad credit in Ireland to payday loans to avoid hefty interest payments. Are they actually better than payday loans? Thereby hangs a tale.
Bad credit loans could prove to be affordable
There are several small emergency loans sold under different names. They all include more or less the same features. Even if you apply for a bad credit loan, interest rates will be high, but they are a shade different from payday loans.
Payday lenders might avoid running a hard credit check. They usually rely on your income and expense details to decide whether or not to approve your application. As your credit rating is already abysmal, payday lenders charge high interest rates. Bad credit lenders also charge high interest rates, but they are subject to hard credit checks.
No bad credit loan provider will approbate your application without running hard checks. It is vital to gain insight into your past payment behaviour. It is likely that your current income suggests that you could manage to repay the debt along with your other expenses, but you might have a propensity to make a default.
Your credit report does not suggest whether you will be able to discharge the debt on time because it is dependent on your income sources, too, but it clearly reveals your attitude towards debt payments. Lenders want to see how serious you were about payment in the past. If you have a few missed payments, your chances of qualifying for a loan are higher than those with defaults on multiple loans.
As bad credit loans clearly reveal your credit history and repaying capacity, lenders will charge much more competitive interest rates.
The APRs of bad credit loans are lower
Most people believe that payday loans are capped at 0.8% per day, so they are affordable. Do not forget that you will also be charged fees. The APR is the annual percentage rate. It is a broader term because it includes fees along with interest rates. The APR signifies what would be the cost of the debt if you borrowed it for a full one year.
After including fees and associated charges, the annual percentage rate of payday loans could be up to 1500%. This is way too much. This is because when the loan is rolled over, interest penalties and late payment fees are charged on the accrued balance. It quickly accumulates the debt, leaving you in a permanent ongoing cycle of debt.
Bad credit lenders also charge fees, but they are much lower than that of payday loans. The APR of bad credit loans would be up to 500%. Bear in mind that the APR varies by lender. You should always research the market carefully and compare interest rates.
There are some comparison websites that will help you distinguish between lenders based on interest rates, but those comparisons are not made based on annual rates as they only display estimated interest rates. You should contact lenders to know about their fee criteria. Some lenders show the representative APR on their websites.
However, no lender would be in a position to reveal the actual interest rates unless they peruse your credit rating and income sources.
Bad credit loans may be instalment loans
Payday loans are quite small and aimed only to help tide you over during emergencies. The amount is usually not more than €500, which is paid back in a lump sum. It usually involves a period of between 14 days and a month.
However, bad credit loans can be small or large. If the borrowing sum is too small, you will be required to repay the debt in full on the due date. If the borrowing amount is large, you will be asked to discharge the debt in fixed monthly instalments. Depending on the size of the loan, the repayment period could vary between three months and a year.
Bad credit loans help with credit improvement
Payday loans cannot help ameliorate your credit rating, but bad credit loans help with it, provided they are paid back in fixed instalments over a period of time. Small loans with bad credit paid off in full on the due date. However, they do not help with building and improving credit history.
Wrapping up
Bad credit loans are a better alternative than payday loans because they carry lower interest rates than the latter. In addition, they can help you meet larger expenses, unlike payday loans. Depending on the loan amount, your lender might put you on a fixed repayment plan. They can even help improve your credit score.
Though bad credit loans are more affordable than payday loans, you must use them only in case of emergencies. Borrowing for recurring and discretionary expenses can trap you into debt.
