How much money can you borrow with a payday loan?

How much money can you borrow with a payday loan

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This is one of the most frequently asked questions that pay day loan companies receive, and can vary tremendously between lenders. For example, one pay day loan company may have a limit of 500, whilst another can lend up to 1,500.

In contrast to bank loans, the amount you can borrow is relatively little - and there's good reason for this. Payday loan are only really meant to be for short term financial solutions. In fact they are becoming the most popular way of borrowing small amounts of money for a short period of time.

Due to their nature (being a short term loan), the amount you need to borrow should be relatively little. Another reason you can't borrow more than, say 1,500, is because of the interest rates. For example, some rates can vary between 1000% and 2000% Annual Percentage Rate (APR). These are deliberately set high as you will only need to borrow an amount of money until your next pay cheque - hence the name payday loan.

Considering this type of loan is short, you should only really be applying for it in emergency situations, or where it could end up costing you so much more money than if you took out a loan in the first place. Let's take a look at an example to give you an idea.

It's the middle of the month and you have just received a late payment letter for a utility bill. You look in your account and you don't have enough money. Your next pay day isn't until two weeks. What do you do? If you left the bill, you could be faced with a huge fine, in some cases a 20 - 25 fine on top of your existing bill. If you paid it and went into an unauthorised overdraft, this could also cost you - not just the interest rate of the overdraft but also the fines and charges associated with it. Alternatively you could apply for a payday loan - secure in the knowledge that the bill has been dealt with and the money you borrow will be paid back on your next payday.

Don't let the interest rates put you off; they're high for a reason. It's to stop borrowers from taking out money and never paying it back or deferring repayment each month for various reasons. In this case both the lender and the borrower are being safeguarded with the high interest rates. The interest rate for the amount of time that you borrow money for actually works out at around a quarter of the money you borrow. For example, for every 100 you borrow, you will be charged between 20 and 25 on return.

In most cases you can borrow between 50 and 1,500 - however in some cases you can borrow as little as 1. However there are a variety of stipulations, for example how many times you have borrowed before and how much you earn.

If it is your first time borrowing, then you may only be approved a much smaller amount than 1,500, it could be as little as 300. Your salary could improve this, therefore if you earn a higher amount you could be approved for a bit more. Pay day loan companies want to build trust with borrowers and so if you are a returning customer that has paid on time and earn a higher salary, then you can be approved as much as 1,500, but this will vary between lenders.

If you need a short term financial fix then check out a payday loan company, as long as you know you will be able to pay the money back, there's simply no better lending solution.

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