Payday Loans: The Good, The Bad & The Ugly

Everybody gets cash-strapped now and then and it can be tempting to settle for a quick solution, such as a payday loan. It's one thing to jump into something when the risks are clear, but taking a chance without realizing the danger is like jumping into a pool without first checking to see if there's water below. Here are the pros and cons of payday loans in a nutshell.

Easy Access to Money

Payday loan companies tend to be much more flexible than Mr. Banker when it comes to dishing out loans. This is part of the appeal - and they know it. This doesn't mean that the fine print details are hidden. One payday loan company even declares that "yes, the money is expensive," in their television ads. These details tend to be overlooked when seeking cash in a hurry. To be fair, a payday loan can be a good choice for paying an unexpected expense or taking care of an overdue bill every now and then.

Ridiculous Interest Rates

The interest rate on a payday loan varies, but is usually 15 percent or higher. The interest rate on a credit card can be anywhere from 7 to 35 percent or higher. The 15% interest rate on a payday loan is typically for a 2 week period. This can equal as much as 600% over the course of a year. Supplementing income from one paycheck to another with payday loans is a big price to pay for robbing Peter to pay Paul.

When to Get a Payday Loan

Individuals who clearly understand the fees associated with a payday loan are already off to a good start. Many of these companies count on desperation as the main motivation for seeking a payday loan. Obtaining a payday loan can be a good idea when:

• Funds will definitely be available in 2 weeks.
• It's an occasional solution, not a habit.
• All terms and conditions are clearly understood.
• No other options are available and it's a last resort.

When Not to Get a Payday Loan

It's best to skip the payday loan option when making the decision based on a desperate need for cash, regardless of the consequences. Generally, a payday loan is not a good idea when:

• It becomes an endless cycle of seeking another payday loan to payoff the one that is due.
• It is clear that the money to pay back the loan won't be there in 2 weeks.
• There are other options available, such as getting a salary advance or borrowing the money from a friend.
• Financial problems are widespread and more debt is involved than a payday loan can realistically cover.

Getting approved for a short-term loan, which is really what a payday loan is, is almost never an issue. Usually, all that is needed is a bank account and some form of income. A payday loan can a convenient solution to a temporary problem, but should never be a temporary solution to a permanent problem such as serious debt issues. Payday loans, by nature, come with a certain degree of risk. It is best to know this ahead of time and weigh all available options before making the decision to apply for a payday loan. Guest author Tim Flores is a freelance blogger and is writing on behalf of www.parrotloans.co.uk.

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