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Is a Payday Loan Right for Me? Should I Get a Payday Loan? What are the pros and cons of Payday Loans?

Is a Payday Loan Right for Me?

Everybody knows that the cost of taking out a payday loan, that is a very short-term loan which will be settled once your pay cheque arrives or your salary is paid into the bank, will be proportionately higher than taking out a conventional loan involving a longer repayment period.

The reasons for this are fairly straightforward. First of all the administration costs involved in issuing a loan are more or less a constant, and will not increase significantly just because a loan is taken out over a longer period. Secondly some element of cover has to be built in to compensate for the risk of default, and for the fact that, proportionately, the interest on a one-week or two-week loan when calculated as an Annual Percentage Rate (APR) would be too insignificant to make it worth lending out the money. When one considers that the APR included with a payday loan can be in the region of 300 per cent or even higher, the dangers inherent in extending such a loan are strikingly obvious. For example, a loan carrying an APR of 300% would involve an approximately 11.5% interest charge over a period of a fortnight. This is in addition to any administration fee levied at the time of the transaction.

However to extend the payday loan period would involve paying a similar amount of interest on the extended amount, including the added interest. Thus one would only have to extend the loan a few times before the repayment amount was in fact double the original amount borrowed.

So is a payday loan right for you?

Well there are advantages. To start with the qualification criteria for a payday loan are less stringent, and the process for acceptance is simpler and less stressful. It is usually sufficient for the borrower to demonstrate that he or she is in work and that full repayment is recoverable upon a certain date and without any unnecessary difficulties. There is little point to committing to a loan over a period of years if the money is only required for a matter of a week or two. Sometimes we just need a little help for a short period of time, and that being the case a payday loan, with the terms clearly explained and understood and no hidden extras, can make good logical sense.

The most important thing is for you to remain in control of the situation. As long as the commitment is manageable then the question is a payday loan right for you rather answers itself. Find and compare a range of payday loans using websites such as those listed above.

 
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