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Payday loans are often promoted as a speedy cure for a bad financial situation, letting you bridge the gap between running out of money and your next wage or salary. Basically, you can borrow a small sum of cash for a short period of a week or so, and pay off the loan next time you get paid.
This sort of service can actually be very handy if you've run out of money for day to day living expenses, or if you're faced with an unanticipated bill or expense that you simply can't pay when you need to, but are payday loans always the good choice they're described as?
To start with, we'll take a look at the indisputable advantages of payday loans, before looking at the drawbacks, and possible alternatives you may be able to make use of if you decide a fast cash loan isn't the right option for you.
The lending criteria for pay day loans are really quite lax, and nearly anyone who's employed and has a suitable bank account will in all probability have their loan application accepted. This means that even people with terrible credit scores should be able to get a payday loan, despite being turned down for nearly any other sort of finance.
They are also easy to apply for, and you can often get the money in your account very quickly. Some payday loan companies can even set up an overnight transfer of the loan straight into your account the very next day, which is obviously very useful when you need cash urgently.
Last, once you've been sanctioned for your first loan, it's usually a very simple matter to 'refresh' your loan again if you find you need to make use of the facility if funds are again short in the future.
There are, nevertheless, two major downsides to payday loans which you rarely read in the advertizements and web sites furthering them. Firstly, they're hugely costly compared to other types of credit. Because the lending period of the loan is so small, a fee of 20% of the advance - which is roughly average - will work out to be an eye-wateringly high APR.
The second problem is often a result of the first: because they're so pricey, you can easily be left short of money the following month once you've cleared the loan and paid the costs. In this situation, it's simply too simple to refresh your loan again to cover the shortfall, incurring more fees, and an endless cycle of borrowing.
So, if you decide that a payday loan isn't a good choice for you, what options do you have? The first one is making use of a credit card, if you carry one. While credit cards are normally also pretty pricey types of finance, they do allow you to spread the debt over a number of months rather than needing to be repaid immediately along with a fee.
Almost all bank accounts now offer an overdraft facility, which can also be used to cover a short term lack of money. The APR on an agreed overdraft is probably going to be more favourable than that of a credit card, but your bank may not approve your application. Beware of going ahead and overdrawing without your bank's agreement, as the charges they will levy in this case will be punitive.
If none of these options is available to you, and you have no other way of getting hold of money such as borrowing off family, then a payday loan may be the easiest alternative. Just ensure that you use it correctly, and heed the warning sign it's giving you about the longer term condition of your financial life. |
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