| Pay day loans are often touted as a quick fix for a bad financial situation, helping you to bridge the gap between spending all your money and your next paycheck arriving. The basic idea is that you can borrow a small amount of a few hundred dollars for a short term of a week or so, and pay off the debt at your next pay day.
This sort of facility can indeed be very handy if you've run out of cash for living expenses, or if you've been hit with an unanticipated charge or expense that you simply can't pay when you need to, but are pay day loans always the good choice they're presented as?
First, we'll take a look at the indisputable plus points of payday loans, before looking at the disadvantages, and possible alternative options you may be able to utilize if you determine a fast cash loan isn't the right option for you.
The lending standards for payday loans are really quite lax, and almost anyone who's got a job and has a suitable bank account will probably be approved. This means that even people with unfavorable credit histories should be able to be approved for a payday loan, despite being rejected for nearly any other form of finance.
They are also easy to arrange, and you can frequently get the advance in your account in a matter of days. Some providers can even set up an overnight deposit of the money straight into your account within 24 hours, which is obviously really useful when you need cash without delay.
Finally, once you've been sanctioned for your initial 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 money is again short in the future.
There are, nonetheless, two large downsides to pay day loans which you seldom come across in the advertisements and web sites promoting them. Firstly, they're very pricy compared to other forms of borrowing. Because the borrowing period of the loan is so small, a fee of 20% of the loan amount - which is just about standard - will work out to be an amazingly high APR.
The second problem is closely related: because they're so pricey, you can easily be left lacking money the following month once you've paid off the loan and paid the fess. In this scenario, it's simply too easy to renew your loan again to cover the shortfall, resulting in more charges, and a never ending cycle of debt.
Therefore, if you decide that a payday loan isn't the right decision for you, what alternatives do you have? The first one is using a credit card, if you carry one. While credit cards are usually also pretty expensive forms of finance, they do allow you to spread the debt over a number of months rather than needing to be payed back straight away along with a fee.
Many banks 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 less expensive 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 fees they will levy 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 best alternative. Just ensure that you use it properly, and paying attention to the warning it's giving you about the longer term state of your finances. |
Article Details
