Deciding Whether A Payday Loan Is Right For You

Payday loans have both advantages and disadvantages, and it pays to consider them carefully before applying. Find out what you need to know to make the best use out of them.

Payday loans are frequently promoted as a swift solution for a bad financial situation, allowing you to get through the time between running out of money and your next wage or salary coming in. Simply put, you can borrow a small sum of cash for a short period of a week or two, and give back the debt at your next payday.

This sort of service can indeed be very useful if you've not got any cash for day to day living expenses, or if you've been hit with an unexpected bill or expense that you simply can't cover when you need to, but are cash advance loans always the easy way out they're promoted as?

To start with, we'll take a look at the undeniable plus points of these loans, before looking at the problems, and possible alternatives you may be able to utilise if you make up your mind a payday loan isn't right for you.

The lending standards for pay day loans are really quite lax, and almost anyone who's employed and has a suitable bank account will in all likelihood be accepted. This means that even people with unfavorable credit histories should be able to make use of a payday loan, despite being turned down for nearly any other form of finance.

They are also easy to arrange, and you can oftentimes get the funds in your account quickly. Some lenders can even fix up an overnight deposit of the money straight into your account the very next day, which is obviously really handy when you need money fast.

Finally, once you've been accepted for your initial loan, it's normally a very easy matter to 'renew' your loan again if you find you need to make use of the facility if funds are again short in the future.

There are, all the same, two major drawbacks to cash advance loans which you seldom come across in the advertisings and web sites providing them. Firstly, they're hugely pricy compared to other types of credit. Because the borrowing period of the loan is so short, a fee of 20% of the loan amount - which is just about average - will work out to be an extremely high APR.

The second disadvantage is related to the first: because they're so expensive, you can easily be left without enough funds the next month once you've cleared the loan and paid the costs. In this scenario, it's just too easy to extend your loan again to cover the deficit, resulting in more interest, and a never ending cycle of borrowing.

So, if you determine that a payday loan isn't the right decision for you, what choices do you have? The first one is borrowing on a credit card, if you have one. While credit cards are commonly also pretty expensive types of credit, they do allow you to spread the debt over a a few months rather than requiring it to be paid back straight away along with a fee.

Many bank accounts now offer an overdraft option, which can also be used to tide you over a temporary lack of money. The interest charged on an agreed overdraft is probably going to be less expensive than that of a credit card, but your bank may not extend you the facility. Be careful about going ahead and overdrawing without your bank's authorisation, as the charges they will impose in this case will be high.

If none of these options is open 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 make certain that you use it properly, and heed the warning sign it's giving you about the longer term state of your financial life.

About the author: Martin writes on a large range of financial subjects, from payday loans and how to use them to debt worrries and how to solve them.