Payday Loans

What are They?
Payday loans are cash advances on the salary you're expecting at the end of the month. They're paid back to the lender once you've received your wages. Often, a payday loans firm will require you to write a post-dated cheque which will be cashed when your salary clears into your bank account.

At first glance, payday loans look great. I suspect most of us have, on occasion, run out of money a few days before pay day. So these loans can seem like the answer to your mid-month prayers.

What's Wrong With Them?
The first foul feature of payday loans is their exorbitant rates of interest. In a typical transaction, a customer might borrow 200 over thirty days for a fee of 50 so the total due on pay day would be 250.

That's an interest rate of 25% for just a month and equivalent to an APR of over 2000%!

Perhaps this is an extreme way of looking at payday loans; after all, they're meant to extend over weeks, not years. But it does expose how expensive they really are. In comparison, most personal loans have typical APRs of under 8%.

What's worse is that users often don't stick to the single-month repayment period originally agreed. With many websites offering payday loan 'roll overs' at the click of a button, it's all too easy to extend the term of your borrowing thus incurring extra fees and interest charges.

Perhaps it's no surprise that users of payday loans tend to be young and naive about how to handle their money. Often these users find it hard to get credit elsewhere.

Payday loans are products that can easily push people with existing problems into a downward debt spiral. Use with extreme caution!