While payday loans have been popular for a long time in the United States, they are a relatively recent service for United Kingdom customers, and many people aren't certain precisely what they involve. With all the controversy over whether or not they're a worthy service or simply a kind of legalised loan sharking, it's a good idea for any United Kingdom borrower thinking of applying to realise exactly what they're signing up for.

Plenty of us struggle for funds towards the close of the calendar month to at least some extent, and have to economize a bit by cutting down on socialising or other kinds of extra expending. This is a totally normal (if vexing!) fact of financial life for most of us who are employed and are paid once a month. Sometimes however, running out of cash can be more serious than this if there are needed expenses to be paid such as an unexpected bill or repair cost.

A lot of people utilise the overdraft facility of their bank accounts to provide for a bit of breathing space when funds are short, but in today's world many people are permanently overdrawn and close to their limits, so this may not be an option.

An alternate method of tiding you over until your next pay is to use a credit card, both for buying things and cash withdrawals. There are several drawbacks with this, not least the fact that credit cards are a less than inexpensive kind of borrowing, and there's the temptation to to build up a giant account balance which can have a calamitous effect on your long term financial health.

If neither of the last two options sound good for you you, then a payday loan may well be worth considering. In brief, these loans are available to nearly anyone with banking facilities and a debit card, and who has a job. When you take one of these loans out, the lender will transfer the funds you apply for straight into your bank account, usually within a working day of your application being accepted. On your application you will have provided your debit card information, and the lender will use these to automatically pay back your loan on your next payday, along with their charges.

And in this lies one of the central problems with cash advances - the expense.

This form of credit is ill-famed for being pricy, and staggering APRs of 1000% or even much higher are common. These APR figures are possibly a bit misguiding, as the APR system is intended for finance with a longer repayment period than wage advance loans where the term is measured in a matter of days rather than years. Even so, payday loans are pretty pricey, with a fee of 25% of the amount you borrow generally the going rate.

The next major drawback is that repaying your loan and fee is likely to result in you being skint again at the end of next month, and it's easy to get into an expensive vicious circle of taking out a loan every month - which is when those high APR rates will really sting.

So, is there any benefit to a payday loan? Of course, but only genuinely for an authentic emergency where there is no other choice. If you're using these loans to finance your day to day life, then it would be better to study your spending and determine where you can economise, or to restructure your debt using a consolidation scheme or similar to free up 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 8:15 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.