Pay day loans are often vaunted as a quick cure for a hard financial situation, letting you bridge the gap between running out of money and your next pay day. Simply put, you can borrow a small amount of cash for a short time of a week or two, and pay back the money next time you get paid.
This form of service can indeed be very useful if you've not got any cash for day to day living expenses, or if you're faced with an unanticipated charge or expense that you simply can't cover when you need to, but are payday loans always the easy way out they're promoted as?
To start with, we'll take a look at the undeniable advantages of pay day loans, before looking at the problems, and possible alternatives you may be able to make use of if you decide a payday loan isn't the right option for you.
The lending standards for pay day loans are very generous indeed, and almost anyone who's employed and has a suitable bank facility will likely have their application approved. This means that even people with unfavorable credit histories should be able to get a payday loan, even after being rejected for nearly any other form of finance.
They are also easy to apply for, and you can often get the money in your bank account very quickly. Some payday loan companies can even arrange an overnight transfer of the loan straight into your bank the very next day, which is patently very useful when you need money without delay.
Last, once you've been approved for your first loan, it's usually a very easy matter to 'refresh' your loan again if you find you need to make use of the facility if cash is again short in the future.
There are, however, two substantial downsides to wage advance loans which you seldom see mentioned in the adverts and web sites promoting them. Firstly, they're very overpriced compared to other types of borrowing. Because the term of the loan is so short, a cost of 20% of the loan amount - which is just about standard - will work out to be an extremely high APR.
The second problem is closely related: because they're so pricey, you can easily be left short of money the following month once you've paid off the loan and paid the fess. In this scenario, it's just too easy to extend your loan again to cover the shortfall, incurring more interest, and a neverending cycle of borrowing.
So, if you decide that a payday loan isn't a good choice for you, what alternatives do you have? The first one is using a credit card, if you have one. While credit cards are commonly also pretty expensive forms of finance, they do allow you to spread the debt over a number of months rather than requiring it to be payed back straight away along with a fee.
Many bank accounts now offer an overdraft facility, which can also be used to cover a temporary lack of money. The interest rate on an authorised overdraft is in all probability going to be better than that of a credit card, but your bank might not extend you the facility. Beware of going ahead and overdrawing without your bank's agreement, as the charges they will levy in this case will be very expensive.
If neither of these options is viable for you, and you have no other way of acquiring money such as borrowing off family, then a payday loan may be the best option. Just make sure that you use it correctly, and paying attention to the warning it's giving you about the longer term state of your finances.
Author Resource:
Martin writes on a large range of financial subjects, from fast cash loans and how to use them to tenant loans for people who rent their home.
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