Payday loans are frequently vaunted as a quick solution for a tough cashflow problem, letting you get through the time between running out of money and your next pay day. The basic idea is that you can borrow a small amount of cash for a short time of up to two weeks or so, and give back the loan at your next payday. This sort of service can indeed be really appropriate if you've run out of cash for daily living expenses, or if you've been hit with an unpredicted bill or expense that you simply can't cover when you need to, but are pay day loans always the good choice they're described as?
To start with, we'll examine the indisputable advantages of pay day loans, before looking at the drawbacks, and possible alternative options you may be able to make use of if you make up your mind a fast cash loan isn't right for you. The lending criteria for payday loans are not very strict at all, and almost anyone who's got a job and has a suitable bank account will in all likelihood be accepted. This means that even people with bad credit ratings should be able to get a payday loan, despite being turned down for nearly any other type of finance. They are also easy to arrange, and you can oftentimes get the money in your checking account in a matter of days.
Some lenders can even set up an overnight transfer of the loan straight into your bank within 24 hours, which is obviously very handy when you need money in a hurry. Finally, once you've been approved for your first loan, it's usually a very simple matter to 'top up' 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 drawbacks to payday loans which you rarely come across in the advertisements and web sites pushing them.
Firstly, they're hugely expensive compared to other kinds of borrowing. Because the term of the loan is so short, a fee of 20% of the loan amount - which is about average - will work out to be an amazingly high APR. The second drawback is often a result of the first: because they're so expensive, you can easily be left short of money the next month once you've cleared the loan and paid the charges. In this scenario, it's just too simple to extend your loan again to cover the deficit, resulting in more interest, and a never ending cycle of borrowing. Therefore, if you make up your mind that a payday loan isn't the right option for you, what choices do you have? The first one is making use of a credit card, if you have one.
While credit cards are usually also pretty expensive types of credit, they do allow you to spread the debt over a number of months rather than needing to be repaid immediately along with a charge. Most bank accounts now offer an overdraft facility, which can also be used to cover a short term lack of money. The interest charged on an agreed overdraft is in all likelihood going to be better than that of a credit card, but your bank might not approve your application. Beware of going ahead and overdrawing without your bank's authorisation, as the fees they will levy in this case will be punitive.
If neither of these options is available to you, and you have no other way of acquiring money such as borrowing off family, then a payday loan may be the easiest option. Just ensure that you use it correctly, and paying attention to the warning it's giving you about the longer term state of your finances.
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