As the recession hits hard payday loans are becoming more widely available to people needing financial help. They can be a very useful quick-fix solution, as long as people take care to avoid the pitfalls.
During the recession more and more people are turning to payday loans for help with temporary financial difficulties. A payday loan is seen as an instant access, short-term loan, intended as a swift and easy solution for unexpected expenses. They have a number of advantages to people finding it hard to obtain other sources of finance, such as:
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Speed - Because payday loans are accessed via the internet, you can often be credited with the loan within less than one working day.
Convenience - If you have an unexpected bill to pay, such as car repairs, or other unforeseen costs, and your payday is not yet due, you can borrow until your payday, and the loan is paid back as soon as your salary is credited to your bank account.
Easy to Apply - You can apply for a loan via the internet, in the comfort of your own home, by filling in a straightforward online application form.
Amount - Different providers set different minimum and maximum limits, but the amounts available are typically from as little as £50 up to £800, dependent on your individual circumstances.
Less stringent conditions - Loans are available to people over the age of 18, and to apply for a payday loan, you need to provide details of your bank account, so that you can receive the loan and pay it back when you receive your salary. You also need to be in receipt of a regular source of income. However, you can be considered for a payday loan even if you have a bad credit record.
Avoid Bounced Cheques - Although rates of interest are high on payday loans, they still work out less expensive than a bounced cheque, as well as less embarrassing. If you bounce a cheque then, not only will you incur bank charges, but the creditor may also charge interest for late payment.
Despite the advantages associated with this type of loan, they have received a lot of bad press, mainly associated with the high level of interest. It is important to look at all the potential pitfalls when taking out a payday loan. For example, on a typical loan of £100, you may pay interest of approximately £25. This interest is based on the short-term, which means that if you continue to borrow each month, the charge escalates.
Another potential pitfall is that because the lender automatically takes the outstanding amount on your next payday, you have to ensure that you have budgeted for this amount; otherwise you could default on other payments made from that account.
Therefore, although there are many advantages to payday loans, especially for people who may find it hard to access other forms of credit, it is important to regard them as a short-term solution only. They can be a very useful emergency back-up when you are faced with unexpected bills.
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