While payday loans have been around for ages in the United States, they are a comparatively recent arrival for United Kingdom borrowers, and many people aren't certain exactly what they are. What with all the argument over whether or not they're a worthwhile service or only a type of legally accepted loan sharking, it's a good idea for any UK borrower thinking about applying to know exactly what they're signing up for.

Plenty of us run out of money when nearing the end of the month to at least some extent, and have to economise a little by trimming down on socialising or other kinds of extra expending. This is an absolutely normal (if annoying!) fact of fiscal life for most of us who are employed and receive our salaries once a month. Occasionally nevertheless, running out of money can be more challenging than this if there are needed expenses to be paid such as an unexpected bill or repair cost.

Some people utilize the overdraft facility of their bank accounts to provide a bit of breathing room when cash is limited, but these days many people are permanently overdrawn and close to their limits, so this may not be an option.

A contrasting way of keeping your head above water until your next pay is to make use of a credit card, both for buying things and cash withdrawals. There are assorted problems with this, not least the fact that credit cards are an expensive type of borrowing, and it's tempting to build up a huge account balance which can have a disastrous effect on your long term financial health.

If neither of the previous two options are the right option for you you, then a wage advance loan might well be worth considering. In short, these loans are available to virtually anyone with a bank account and a debit card, and who is in regular employment. When you take a payday loan out, the issuer will transfer the amount you apply for directly into your bank, commonly inside 24 hours of your application being okayed. On your application you will have provided your debit card particulars, and the lender will use these to automatically repay your loan on your next pay day, as well as their charges.

And therein lies one of the main problems with wage advance loans - the charges.

This form of credit is ill-famed for being expensive, and punitive APRs of 1000% or even much more are not unusual. These APR figures are maybe a little misleading, as the APR system is intended for credit with a longer repayment period than wage advance loans where the term is measured in a matter of days rather than years. All the same, these loans are quite costly, with a fee of 25% of the amount you borrow in general the going rate.

The other serious problem is that paying off your loan and fee is likely to leave you moneyless once more at the end of next month, and it's easy to get into an expensive vicious circle of applying for a loan each month - which is when those exorbitant interest rates will really start to have an effect.

So, is there any benefit to a pay day loan? Yes, but only genuinely for an authentic emergency where there is no alternative. If you're using cash advances to pay for your day to day life, then it would be a better idea to analyze your finances and ascertain where you can economize, or to restructure your debt using a consolidation loan or similar to set free some supplementary 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 8:19 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.