While payday loans have been popular for a long time in the USA, they are a comparatively recent service for UK customers, and a lot of people aren't certain just what they are. With all the argument over whether they're a legitimate service or only a type of legitimised loan sharking, it's a good idea for any GB citizen thinking of applying to realise exactly what they're getting into.

Many of us struggle for cash when getting towards the close of the calendar month to at least some extent, and have to rein in our spending a bit by cutting down on socialisation or other sorts of extra spending. This is a perfectly normal (if annoying!) fact of fiscal life for most of us who are employed and receive our salaries each month. Sometimes nonetheless, running out of cash can be more problematic than this if there are important expenses to be paid such as an unexpected bill or repair cost.

Many people utilise the overdraft facility of their bank accounts to provide for a bit of leeway when funds are short, but these days many people are permanently overdrawn and approaching their limits, so this may not be an option.

A contrasting way of keeping going until your next salary is to utilise a credit card, both for buying things and cash withdrawals. There are numerous difficulties with this, including the fact that credit cards are a less than inexpensive form of borrowing, and there's the temptation to to build up a heavy balance which can have a calamitous effect on your long term financial health.

If neither of the last two alternatives are the right decision for you you, then a payday advance loan may well be worth considering. Basically, these loans are available to virtually anyone with a bank account and a debit card, and who is employed. When you take a payday loan out, the lender will transfer the funds you ask for directly into your account, commonly inside 24 hours of your application being approved. During your application you will have given your debit card particulars, and the lender will use these to automatically repay your loan on your next pay day, as well as their fees.

And therein lies one of the serious problems with wage advance loans - the cost.

This sort of borrowing is ill-famed for being costly, and eye-watering interest levels of 1000% or even much higher are perfectly normal. These APR figures are maybe a bit misguiding, as the APR system is designed for credit with a longer repayment period than pay day loans where the term is measured in days rather than years. Still, these loans are pretty expensive, with a fee of 25% of your loan amount in the main the going rate.

The other serious problem is that repaying your loan and fee is likely to lead you into being moneyless once again at the end of next month, and it's all too easy to get into a punishing vicious cycle of applying for a loan every month - which is when those high APR rates will really start to hurt.

So, is there any benefit to a payday loan? Yes, but only really for an authentic emergency where there is no alternative. If you're relying on payday loans to finance your day to day life, then it would be better to study your budget and find out where you can economise, or to reconstitute your debt using a consolidation program or similar to set free some spare cash every month.

Martin writes for a fast payday loans provider in the UK, and you can read more about the pros and cons of wage advances at his site as well as applying online.

This entry was posted on Monday, September 7th, 2009 at 8:13 am and is filed under Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.