When people are short on money, some will often turn to a payday loan to try and make up for it. In many cases, this is something that can help increase your credit score, and help you manage your money better in future if you’re good with repayments. However, at other times this approach can be more of a hindrance than a help.

What is a payday loan?

A payday loan is a small loan (commonly £100-£1500) that is lent at high interest rates with the agreement that it will be paid back on your next pay day.

Supporters of payday loans believe that they’re beneficial for those on a low-income or with bad credit. It allows people to have access to money that they wouldn’t be able to get through more traditional channels such as the bank.

In contrast, critics of payday loans believe that these loans are predatory, and target those with a low-income knowing that the high interest rates are likely to put them in long-term debt.

I’m a big critic of payday loans, and I believe that everyone should avoid them, but circumstances that are out of our control can lead you down that path.

I’ve put together the main pros and cons of payday loans so you can decide what you think for yourselves. And if you do decide to take out a payday loan, you know exactly what you need to.

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1. Timing

Most payday loan applications don’t take long to complete, and most lenders approve payday loans instantly once you’ve provided the information required.

Conventional loans mean lengthy applications, and a longer processing time. This is the same with credit cards. Most payday loan lenders aim to provide a quick service in order to stay competitive. Many lenders transfer the funds the same day, or the next working day.

2. Convenience

The process of applying for a payday loan can all be done online. In the new world of technology, this makes it much easier to get access to a loan.

A payday loan allows you to have the money in cash which allows you to do more with your money. Whereas with a credit card, you can only pay for goods and services, and you are charged for taking cash out of an ATM.

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3. Few Requirements

To get access to a payday loan, you don’t need to provide all the information needed for a conventional loan. The main requirement is that you have a stable source of income, which highlights your ability to pay the loan back.

For a traditional loan, you may require a guarantor that agrees to pay the loan in the likelihood that you’re unable to repay it yourself. Once you’ve proven that your income is consistent and this can be verified, you’re good to go for a payday loan.


1. High Interest Rates

With any loan comes interest, but with a payday loan, the interest rates are very high. This makes it very expensive to repay, and can often put people in further debt.

Interest rates for credit card can range from 50% to over 300%. Over a year, the average annual percentage interest rate of charge could be up to 1,500% compared to 22.8% for your average credit card (Money Advice Services 2019).

The good thing is that payday loans have been capped by law, under rules by the Financial Conduct Authority (FCA).

2. Payday Loans Are Predatory

Payday loans target those with a low income or with bad credit. They make it easy for people to borrow money, because in many cases, they know that these people will struggle to repay the loan, and therefore have to pay back more than they borrowed.

Not only can this lower your credit score even further, but it can lead to mental and physical health issues due to the financial pressure. Health is the most precious wealth. Sometimes it may seem impossible to deal with all your financial commitments, but try to cut back on certain purchases to free up more funds. Pay off small debts in full when you can so from following month, you have that available to put towards other things. Develop a saving plan that makes use of your small change. Try various alternatives before turning to a payday loan.

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3. Recurring Payments

Before a lender agrees to accept your payday loan application, they will ask you to to set up a recurring payment. This is also known as a continuous payment authority (CPA).

This allows lenders to take the repayments directly from your bank account via debit card, whether you have the money or you don’t. This could lead to bank charges, or not enough money to cover your remaining bills.

You can cancel your CPA at anytime, but you will still have to pay back what you borrowed in another way.


The best way to avoid the disadvantages of a payday loan is to avoid them all together. They should be a last resort in the case of an emergency, and before applying, create a personal repayment plan that you can commit to.

New templates are coming soon to my website.

T K Williams-Nelson

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Published by T K Williams Nelson

I'm Tannika. Author & Writer. Business Owner. Spoken Word Poet. As featured in The Kilburn & Brent Times, The Voice Newspaper, Brent Magazine, BBC and more. This is my space. I share my work, my experiences and things I find interesting. Shop my streetwear and crochet brands at my online boutique, Unique Boutique London, and my books: Tales of the Hood Underclass 7 Time is Money Available on my author website, Amazon, Barnes & Noble and all other online book retailers. For enquiries: timeismoneyinquiries@gmail.com

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