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Should You Choose a Payday Loan

Date Added: June 21, 2011 03:57:57 PM
Author: Martin Sumner
Category: Financial Services
Cash advance loans are frequently vaunted as a rapid fix for a poor financial situation, allowing you to get through the time between running out of money and your next wage or salary coming in. The basic idea is that you can borrow a small sum of money for a short period of a week or so, and repay the loan at your next payday. This kind of facility can indeed be very useful if you've run out of cash for daily living expenses, or if you're faced with an unexpected bill or expense that you simply can't cover when you need to, but are payday loans always the easy way out they're presented as? First, 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 utilize if you determine a fast cash loan isn't right for you. The lending criteria for cash advances 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 terrible credit ratings should be able to get a payday loan, despite being turned down for nearly any other form of credit. They are also easy to arrange, and you can frequently get the money in your checking account in a matter of days. Some payday loan companies can even arrange an overnight transfer of the loan straight into your bank account within 24 hours, which is obviously very handy when you need cash urgently. Last, once you've been authorized for your first loan, it's normally a really easy matter to 'renew' your loan again if you find you need to make use of the facility if cash is again short in the future. There are, nevertheless, two major drawbacks to payday loans which you rarely see mentioned in the advertisements and web sites promoting them. Firstly, they're very costly compared to other kinds of borrowing. Because the lending period of the loan is so short, a fee of 20% of the amount you borrow - which is more or less standard - 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 cash the following month once you've repaid the loan and paid the fess. In this scenario, it's just too easy to refresh your loan again to cover the shortfall, resulting in more fees, and a permanent cycle of debt. Therefore, if you decide that a payday loan isn't a good choice for you, what alternatives do you have? The first one is borrowing on a credit card, if you have one. While credit cards are usually also pretty costly forms of borrowing, they do allow you to spread the debt over a a period of months rather than requiring it to be repaid straight away along with a fee. Most bank accounts now offer an overdraft facility, which can also be used to tide you over a short term lack of money. The APR on an agreed overdraft is likely to be better than that of a credit card, but your bank may 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 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 best option. Just ensure that you use it correctly, and listen to the warning sign it's giving you about the longer term state of your finances.
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