Advantages and Disadvantages of Payday Loans

Payday Loans, or Cash Advances as they are sometimes known have become very popular in recent years. You will see many High Street Lending Shops with big signs 'Cheques cashed'.

This type of short term loan can be a great help if you have an unexpected expense and need something to get you through to the next payday.

Advantages are that they are fast and relatively hassle free. You will need some ID, proof of earnings and income and be able to give a post dated cheque to the borrower. There is usually no credit check. They are available even with a poor credit rating and history. They do not affect your credit rating.

If thought of as an emergency loan and you will have no problem in paying it back in full with the interest due then they can be an easy, quick solution to a temporary financial need. It is not something to get into a habit of. It is easy to get into this monthly cycle of always needing a bit more cash towards the end of the month and in effect living off next month's wage.

The big disadvantage is the high interest charged on this kind of short term loan. Interest rates of 20 to 35% are quite common and if this is scaled up to an annual rate (APR) it can get to a staggering 1000% or more!

And because they are so easily available it is easy to get into a habit of relying on them. And the other big disadvantage is if they are not paid in full and on time there will be even more interest and fees to pay and they can quickly escalate out of control.

There are better and safer methods of short term loans. There are now many local Credit Unions. They are not affiliated to any of the large banks and financial institutions and will offer much lower rates for this kind of short term loan.

Payday Loan Resources