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.

Pay day loans are frequently touted as a fast cure for a bad cashflow problem, letting you get through the time between running out of money and your next wage or salary. Basically, you can borrow a small sum of a few hundred dollars for a short period of a week or two, and repay the debt next time you get paid.

This type of facility can indeed be really useful if you've got no cash for living expenses, or if you're surprised by an unforeseen charge or expense that you simply can't meet when you need to, but are cash advances always the helpful option they're promoted as?

To start with, we'll outline the incontestable benefits of pay day loans, before looking at the disadvantages, and possible other options you may be able to utilize if you make up your mind a payday loan isn't the right choice for you.

The lending criteria for payday loans are really quite lax, and almost anyone who's in employment and has a suitable bank facility will in all likelihood have their application approved. This means that even people with terrible credit histories should be able to make use of a payday loan, despite being turned down for nearly any other sort of finance.

They are also simple to apply for, and you can often get the cash in your account very quickly. Some lenders can even arrange an overnight deposit of the funds straight into your bank account within 24 hours, which is patently very handy when you need money in a hurry.

Last, once you've been accepted for your initial loan, it's normally a really easy matter to 'roll over' 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 major downsides to cash advance loans which you seldom come across in the adverts and web sites providing them. Firstly, they're very pricey compared to other forms of borrowing. Because the lending period of the loan is so short, a fee of 20% of the advance - which is just about standard - will work out to be an amazingly high APR.

The second drawback is often a result of the first: because they're so pricey, you can easily be left lacking money the following month once you've cleared the loan and paid the fee. In this situation, it's simply too simple to roll over your loan again to cover the deficit, incurring more fees, and a permanent cycle of debt.

Therefore, if you resolve that a payday loan isn't the best way forward for you, what choices do you have? The first one is making use of a credit card, if you carry one. While credit cards are commonly also quite expensive kinds of borrowing, they do allow you to spread the debt over a a few months rather than requiring it to be paid back immediately along with a charge.

Most bank accounts now offer an overdraft facility, which can also be used to tide you over a short term lack of money. The interest charged on an authorised overdraft is likely to be less expensive than that of a credit card, but your bank may not approve your application. Be careful about going ahead and overdrawing without your bank's prior agreement, as the interest they will impose in this case will be high.

If neither 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 be sure that you use it correctly, and paying attention to the warning it's giving you about the longer term state of your finances.

About the author: Martin writes on a large range of financial subjects, from payday loans and how to use them to dealing with debts.