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Payday Loans: How To Make Them Work For You

Payday loans are an interesting proposition. Some people love them and some hate them and think they are the most evil creation in the universe. As with most things, it is how they are used, rather than the loans themselves that make all the difference.

On the surface, payday or cash advance loans are very simple. The application process, which can be done on-line or in person, tends to consist simply of proving that you are employed and producing a pay stub, proof of ID and proof of a bank account.

You then determine the amount you need until your next check, and write a post-dated check for this amount, plus the fees from the lender. The lender then gives you that amount and withdraws the amount from your bank account on your next payday.

A little below the surface, we see that there is a significant degree of risk for both lender and borrower. The lender may find that the borrower has been less than honest about one or more facets of his or her ability to pay back the money. Also, many people who are taking advantage of payday loans are doing so because they have bad credit, which also makes them a higher-risk loan. To offset this risk, the interest rate charged to all customers is very high and repayment terms are concomitantly short.

Which is where the risk to the borrower comes in. More than one person has discovered that they are unable to pay back the loan amount in part, or in full, once it comes due. This can lead to an unpleasant cycle of borrowing ever more money to pay off the last loan and then taking out another loan to pay off the loan to pay off the first loan, until there is no way out.

Thus, it is vital to be extremely cautious with this type of borrowing and to only do so when one is certain of paying off the loan by the due date, and when there is no other recourse. Used carefully, this can be a valuable resource, especially for those who have had unfortunate situations with their credit and cannot gain approval for more traditional loans.

There are some steps that can be taken to ameliorate this risk. The first, I have already mentioned is to be sure you can pay the loan back. Do not use these loans for a recurring monthly expense.

Also, be sure to do your research. As with any lender, some cash advance companies will offer better rates and terms. Some too, will be more reliable than others.