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Looking deeper – Good and Bad


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A payday advance or cash advance is a short term loan that a person secures on their next pay check. To qualify for a payday loan one must have a current salary account, previous payroll and employment records. Legislation of payday loans varies from state to state in U.S. and from one country to the other with some states and countries placing caps on the maximum interest rate that can be charged on a payday loan. The loans are meant to be paid within 31 days although a customer can request an extension of the time period which in most cases is granted with an additional fee charged.

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Why do people use these loans?

  1. They provide money needed for emergencies at a short notice. They take only a few days to process and if one has their previous payroll stubs in order then they will have money in their account within a week. Some online lenders even approve customers’ requests within hours and send the money to the customers’ accounts the same day.
  2. They offer an alternative source of credit for when one’s credit cards cannot be used due to one reason or the other. One’s credit cards may be maxed out when the emergency arises and payday loans provide a speedy alternative source of credit.
  3. They enable one to get credit for issues that might not be acceptable by banks. There are some emergencies for which financial institutions will deny one a loan and for which a salary advance from the office is also hard to get. Most payday loan providers do not require knowing what the money is going to be used for and this means that the customers can borrow money and use it for whatever purpose.
  4. The debt is short term- The money is deducted from one’s salary at end month and this means that one gets to sort out their current problem without incurring a long term loan
  5. It is possible to qualify for the loan even when one has a bad credit record
  6. Sometimes, getting a payday loan is cheaper than the interest one would incur on an overdraft or from falling behind on a credit card payment. Even though the interest charged for payday loans is quite high, since the loan is repaid within one month the actual sum of money paid on top of the loan is not much.

The bad side

  1. The interest rate charged for payday loans can be extremely high (up to 1286.2% for some lenders) and therefore one should only consider taking one if they can comfortably settle it with their next paycheck without being left in more problems.
  2. If not paid on time a payday loan can easily spiral out of control. It is important therefore that one understands how the loan repayment works, the interest charged and any other important details before getting one.
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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk