Cash advance loans are often touted as a swift cure for a poor financial situation, letting you bridge the gap between running out of money and your next paycheck. The basic idea is that you can borrow a small amount of money for a short time of a week or two, and repay the loan at your next pay day.
Photo: nickb_rockThis kind of facility can indeed be very useful 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 just can’t cover when you need to, but are pay day loans always the easy way out they’re promoted as?
First, we’ll take a look at the undeniable benefits of these loans, before looking at the disadvantages, 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 pay day loans are very generous indeed, and almost anyone who’s employed and has a suitable bank account will likely be accepted. This means that even people with bad credit scores should be able to get a payday loan, even after being turned down for nearly any other form of credit.
They are also easy to arrange, and you can oftentimes get the money in your account in a matter of days. Some lenders can even set up an overnight deposit of the loan straight into your account the next working day, which is patently really useful when you need cash in a hurry.
Photo: nickb_rockFinally, once you’ve been accepted for your first loan, it’s usually a really simple matter to ‘roll over’ your loan again if you find you need to make use of the facility if funds are again short in the future.
There are, nevertheless, two substantial drawbacks to wage advance loans which you rarely come across in the ads and web sites furthering them. Firstly, they’re very pricey compared to other types of credit. Because the lending period of the loan is so short, a fee of 20% of the amount you borrow – which is about average – will work out to be an eye-wateringly high APR.
The second drawback is closely related: because they’re so costly, you can easily be left without enough cash the month after once you’ve paid off the loan and paid the interest. In this scenario, it’s simply too simple to refresh your loan again to cover the shortage, resulting in more fees, and a neverending cycle of borrowing.
So, if you decide that a payday loan isn’t the best way forward for you, what options do you have? The first one is making use of a credit card, if you carry one. While credit cards are usually also fairly expensive kinds of finance, they do allow you to spread the debt over a number of months rather than needing to be repaid immediately along with a fee.
Photo: nickb_rockMany banks 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 in all likelihood going to be lower than that of a credit card, but your bank may not approve your application. Beware of going ahead and overdrawing without your bank’s agreement, as the charges they will impose in this case will be very expensive.
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 better alternative. Just ensure that you use it properly, and heed the warning it’s giving you about the longer term condition of your financial life.
