Handling finances is a challenging task. We often notice people forget about their minor expenses and monthly bills. There are also situations where people exhaust all funds and are out of money to pay their bills. A 500 pound loan comes handy in such a scenario. You must be wondering how long does it take to improve credit score uk, so we decided to write a whole article about how to apply for a loan with good credit score in UK.
It is a ‘payday loan’- a small value loan crafted primarily for smaller expenses like bills and medical emergencies. These and similar other smaller amount payday loans are referred to as ‘High-Cost Short-Term Credit’ loans by the Financial Conduct Authority. This loan is applicable for low expenses and not for long term financial requirements.
Applying for the Loan
The process of applying for this small value loan is easy. The online application is the best way to apply for this loan. The documentation is not heavy and time-consuming for this loan and gets approved quickly. It is feasible to apply for the 500 pound loan online. A quick upload of the documents and required information is all that it takes to avail this loan.
Personal loans do not need to be big amounts. Often, people face situations where they do not need a large sum of money. There are several companies that offer smaller value loans. These loans are available for people to apply and avail finance quickly without hassle. Loans of massive sums of money generally require a lot of paperwork to be done that include filling out paperwork, verification, and so forth. A 500 pound loan eradicates these hassles and makes the application process more convenient.
Interest Rates on a Payday Loan
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If the loan is availed from a high-cost short term loan provider (where the yearly interest rate is plus 100%), the annual percentage rate automatically increases.
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Although the Financial Conduct Authority (FCA) has legally capped the interest rate at 0.8%, many loan lenders are setting their interest rates at this rate or lower. This makes the interest payback rate comparatively higher.
The payday loan often proves to be useful in a financial emergency where an individual is in dire need of money. Financial support is the main aim of this loan, albeit never a solution for long term financial matters.
Characteristics of the loan
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This loan can be availed quickly.
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There are no restrictions or boundaries as to where the loan money should be used.
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The process of applying for a 500 pound loan takes place online without the hassle of paperwork.
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There are no issues with a credit check and credit score unlike in the case of higher-value loans.
Criteria for Availing a Payday Loan
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The applicant should be at least 18 years of age when the loan application is submitted.
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The applicant should be a resident of the United Kingdom.
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The applicant should be employed in regular service.
Checks Conducted for Loan approval:
Credit Check:
A background credit check is done to check the financial and credit history of the applicant. This is helpful in the decision-making process of approving a 500 pound loan.
Affordability Check:
This is conducted to check the affordability of the applicant to see if they are capable of repaying the loan.
Employment Details:
This includes the details of employment such as the organization the person is working in, the salary and so forth, are checked to ensure the person is employed. Occupation is an essential criterion for the loan.
Credit Score and Payday Loan:
An applicant with a bad credit score can also apply for the 500 pound loan. Many parameters are considered for the approval of a loan. Interest rates, installment to income ratio, financial history, employment status are some parameters apart from credit score that help decide the approval of a loan.
A person with a low credit score can apply for a payday loan. Several agencies and lenders provide such loans to people who have a  low score, and the applicants who do not have any guarantor.
Repayment of the Loan:
The repay of the 500 pound loan used to be fixed and the applicant was required to pay the entire amount in one go. However, with the high demand for this small amount loan, the repayment term has been extended for a few months. Currently, the payment period is three months and more if you are unable to pay the entire sum in one go. Borrowers can also pay back the loan amount early in installments or the entire amount to save money on the interest rate.
There are many payment authority systems whereby the applicants can repay the amount automatically from the account in the stipulated term. These systems store the information and loan details of the applicants in an organized manner. It also sends the required data to the applicant through email and reminds them about the repayment schedules. The repayment of the 500 pound loan is generally scrutinized by the Continuous Payment Authority (CPA) online.
This system eliminates the hassle of visiting the bank or the lender manually to make the payments. The installment amount will be directly debited from the account through the CPA method. This method can be canceled by the applicant at any time.
Effects on Credit score
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Taking a payday loan will reflect on the credit report. If the repayments are made on time, the credit score will not be affected.
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Regular repayments will highlight the applicant’s capability of being a potential borrower and that the person can meet the payment timelines.
A 500 pound loan is a quick and effective way of getting money in hand when it is urgently required. It should be used as a solution for a short-term financial crisis.