If you have run out of money, "payday loans" can be a tempting option. These work by loaning you money, which you pay back on your next payday. It sounds good in theory, but the reality is that you will be charged extortionate interest rates on top of the money that you owe. As a result, you can end up paying back much more than you anticipated, which can create further financial problems. Tread carefully if you are thinking about taking out a "payday loan" as you can quickly get into difficulties.

The Advantages

"Payday loans" offer cash on the same day that you apply for the loan, which obviously means that you can get hold of the money very quickly if your application is processed before a certain time. This is useful if you need the money to pay off a bill as you can do so that day if your loan application is successful. At the latest, the loan will usually be paid into your bank account either the same day or the following day (depending on the time at which your application is processed and approved).

The Disadvantages

As "payday loans" are only intended as a temporary loan, you need to be sure that you will have enough money to pay back the loan on your next payday. In terms of interest, you can expect to pay back around at least 125% of the agreed loan. In some cases, the interest rate can be as much as 800% when finance charges are taken into account. For example, if you borrow $100, you will owe much more than this as your loan repayment. This is worth bearing in mind if you think that you may struggle to pay back the agreed amount, as the overall fee that is due will actually be significantly more than the loan that you took out originally. If you absolutely need money in the short term, you are better off using a credit card and paying the amount off as quickly as your circumstances allow to avoid being hit with high interest that prolongs your debt.

The loan repayment will be taken out of your bank account on the agreed date(s), so understanding this is vital to avoid running up an overdraft or getting into debt. As the repayment depends on your next payday, you need to be in regular employment to be eligible for one of the loans. In addition, you also need to have a bank account that can send and receive direct debit payments. The more reputable payday loans companies will ask for identification to verify that you are the owner of the bank account. It is rare for a company to conduct a credit check, so your credit score and the contents of your credit report will be of little interest to them.