Most people at some point are short of money, and need to consider credit as a necessary evil to tide them over. While credit cards, bank overdrafts, and personal loans can all provide a much needed credit line, they aren't always easy to obtain - especially in these troubled economic times. They can also take some time to organise, so even if your application is approved you may have to wait a while for the cash, which isn't ideal if you're desperate for funds.
It is for these two reasons that payday loans are increasingly popular. They're fast to arrange with the cash often in your account within 24 hours, and the approval rate is very high - in most cases, there isn't even a credit check. No wonder then that so many people turn to these loans when they need money in a hurry. But are payday loans always an ideal solution? Not by a long chalk, and there are two major reasons why you should think twice before applying, and only go ahead if you're sure that the benefits outweight the downsides.
The bigest problem with wage advances is that they're expensive. Very expensive. A flat fee of around 20% of what you borrow is charged and must be paid when you settle the loan, even if you're only borrowing money for a few days. This results in huge interest figures when calculated as the finance industry standard APR. This figure can be a little misleading, however, as it is designed to show the yearly cost of credit, when payday loans are only borrowed over days or weeks rather than months.
Nonetheless, this kind of credit is amongst the most expensive out there, and every possibility for getting cheaper credit should be explored.
A releated danger is that it's easy to get into a cycle of needing to take a new loan out every month to repay the old one and the associated charges. This can quickly lead into a downward spiral which is very difficult to escape, and the monthly fees will be a serious drain on your finances. Because of this, most lenders will only renew your loan a few times before requiring you to start weaning yourself off their service by reducing the amount you borrow each month.
A final reason to avoid payday loans is that they may only be a short term solution to deeper financial problems, which would need to be addressed at some point if the need for regular credit is to be avoided in the future.
Author Resource:-
Martin writes for a site offering payday loans to UK residents.
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