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Reasons Why You May Choose a Wage Advance Loan |
| Date Added: June 21, 2011 03:23:12 PM |
| Author: Martin Sumner |
| Category: Home: Personal Finance |
| Payday loans are often suggested as a quick fix for a bad cashflow problem, helping you to bridge the gap between running out of money and your next payday. The basic idea is that you can borrow a small amount of cash for a short time of a week or two, and repay the loan next time you get paid. This form of facility can indeed be very useful if you've run out of money for day to day living expenses, or if you're faced with an unpredicted charge or expense that you simply can't cover when you need to, but are payday loans always the good choice they're presented as? First, we'll outline the indisputable advantages of payday loans, before looking at the drawbacks, and possible alternatives you may be able to use if you decide a fast cash loan isn't a good choice for you. The lending criteria for payday loans are really quite lax, and almost anyone who's employed and has a suitable bank account will likely be approved. This means that even people with unfavorable credit ratings should be able to get a payday loan, even after being rejected for nearly any other type of credit. They are also easy to apply for, and you can often get the money in your bank account in a matter of days. Some providers can even set up an overnight transfer of the loan straight into your account the next working day, which is obviously very handy when you need cash urgently. Last, once you've been sanctioned for your initial loan, it's usually a really simple matter to 'refresh' your loan again if you find you need to make use of the facility if cash is again short in the future. There are, however, two large downsides to wage advance loans which you rarely come across in the ads and web sites providing them. Firstly, they're very pricey compared to other forms of credit. Because the lending period of the loan is so small, a fee of 20% of the loan amount - which is about standard - will result in an extremely high APR. The second problem is related to the first: because they're so expensive, you can easily be left lacking money the next month once you've cleared the loan and paid the costs. In this scenario, it's simply too easy to extend your loan again to cover the deficit, incurring more charges, and a permanent cycle of borrowing. So, if you decide that a payday loan isn't the best way forward for you, what alternatives do you have? The first one is making use of a credit card, if you have one. While credit cards are usually also quite costly types of borrowing, they do allow you to extend the debt over a number of months rather than requiring it to be repaid straight away along with a charge. Almost all bank accounts now offer an overdraft facility, which can also be used to cover a short term lack of money. The interest rate on an agreed overdraft is probably going to be better than that of a credit card, but your bank may not approve your application. Beware of going ahead and overdrawing without your bank's prior agreement, as the interest they will levy in this case will be punitive. If none of these options is accessible to you, and you have no other way of getting hold of money such as borrowing off family, then a payday loan may be the better choice. Just be certain that you use it correctly, and heed the warning sign it's giving you about the longer term state of your finances. |
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