Tuesday, October 19, 2010

Is a Payday Loan Right For You?

Payday loans are designed for people who are experiencing a short term lack of funds. They work by the lender lending the money to the borrower until their next payday when it should be repaid. Because of the immediate nature of the loan, they are generally agreed and paid out very quickly.

Due to the short-term nature of these loans the rates of interest tend to be somewhat higher than standard lending rates and there may be charges as well. The way in which these loans are operated and regulated vary from one country to another (and indeed in the US, from one state to another), but in some areas it is possible to roll over your loan to the next month. The danger here is that you can end up having to repay considerably more than you originally borrowed.

If you are in a position where you are continually running short of money before you get paid then a payday loan is probably not for you as you will find that in effect you are borrowing from your next month’s pay so with interest and charges you will find that you have less money each month.

However, if you are confident that your lack of funds is a short term problem (if you have an unexpectedly large bill to pay, for example) and you are certain you are not going to put yourself into a longer term debt, then a payday loan could be for you. It is important to shop around for the best rates however, and you should always make sure that you borrow from a reputable lender.

Payday loans have attracted a certain amount of controversy due to the danger of falling into unmanageable debt, but for certain people they can provide a much needed lifeline.

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