Cash till payday: The Facts

Short-term loans, sometimes for a matter of days, have become a popular way for people to make up a cash shortfall before an end of month pay check clears. These small loans can be applied for online, approved in a matter of minutes and are in the recipients bank account within a few hours. Despite its popularity and wide marketing appeal, there are some problems with this system which offset the obvious short-term advantages.

The advantages

Fast track loans The main advantage of one of these payday loans is that it can be applied for, accepted and in a bank account within a few hours. This is far quicker than if a loan was applied for with a bank. As these are not financial institutions there is also no need for any kind of credit check so anybody can apply with a good chance of approval. Many of these companies are now registered with a regulating body which gives them at least the appearance of being completely legitimate. Short term loan Loan payment options Another key advantage is the scale of the loan and the pay structure. These loans can be taken out to cover a weekend away or to pay a utility bill before any regular income has been cleared into a bank. Being able to choose when the loan is paid back also gives the recipient the advantage of carefully managing money so the loan is cleared on the same day as the pay check. Interest rates Interest rates are often cited as a problem with these online lenders, but the standard pay back is actually not very much different from a credit card or loan.

The disadvantages

Legal binding It is important to remember if a pay day loan is taken out the recipient is still entering into a legal agreement with the company and failure to obey the agreement could eventually lead to repossession of possessions. As mentioned, the interest rates over the period the loan was requested are not all that far removed from credit card payments. Not paying back on time The problem arises if the loan is not paid back on time. After the repayment date has passed, the interest rate can shoot up to several thousand percent. This means that a small loan can turn into a large financial headache. This problem can lead to people taking out another loan to cover the first loan which they were unable to pay back. Short-term bliss These problems can be summed up by the phrase used, in one form or another, on all of these companies marketing material - these loans are only a short-term, not a long-term, solution to financial problems.