Payday loan advertising is everywhere – on the street corners, on television, in the newspapers and even in your own email inbox.  Payday loans are becoming extremely popular, but do you really know what a payday loan is? In a nutshell, they are almost like an advance of cash on your paycheck.  You provide proof that you get a steady paycheck and in return, you get the cash equivalent to your paycheck.  When you receive your paycheck, that payday loan is paid back, plus a fee for the privilege of course.

In essence, a payday loan is really just a high interest, short-term loan.  There are numerous reasons why you might need a payday loan.  Say, for instance, an emergency comes up where you cannot scramble up enough cash immediately to cover that crisis. You know that you would have the cash with your next paycheck but you would not receive it for another week. A payday loan can help you cover that emergency and keep you going until your next paycheck when you could pay it back.

For others, maybe you don’t have a credit card where you can charge an unforeseen expense, like repairing your car or last minute travel expenses due to a death in the family.  A payday loan can really help out in a crunch, especially if you cannot borrow the money from your friends or family. In these instances, a payday loan can be advantageous.  Here are a few reasons why it is an attractive option:

1.  No credit check is needed so your credit report will not reflect any credit inquiries.

2.  You only need to provide proof of a checking account and a steady paycheck.

3.  There are multiple ways in which to apply for a payday loan – either in person, by fax, by phone or even via the internet.

4.  Payday loans are processed quickly, usually within twenty-four hours.

5.  You know that you will be able to pay back the loan with your next paycheck.

Now that you know the attractive side of payday loans, you should realize there are also some drawbacks to this easy, convenient way to get cash quick.  First of all, payday loans have a fee attached to them.  After all, a service is being provided for the convenience.  Unfortunately, that fee is usually exorbitant. Let’s just say that if you calculate the fees and translate it into a standard APR for a year, you can expect that figure to be at least three figures!

Payday loans can also quickly dig a larger financial hole than what you are already in.  Unless it is truly a temporary, one-time situation, many people who apply for a payday loan do have some pre-existing financial difficulties. And sometimes, when payday rolls around and they have met all other expenses, they might not have enough to cover that loan.  Is that necessarily a problem? No, of course not! It can be rolled over to your next pay period.  Naturally, you’ll have even more fees to contend with.  For some people, they get caught up in a vicious cycle and ultimately end up paying more than they borrowed in the first place.

While these loans are perfectly legal, there are quite a few financial experts who feel that the payday loan industry is virtually criminal. How else can you account for the ridiculously high fees? Some states have passed special laws that limit the percentage fee charged for payday loans.  Unfortunately, those laws don’t always help the consumer who has to continue to roll over the loan until they can pay it off.

So the skinny on payday loans is that you need to proceed with caution. If you are stuck in a situation that you feel confident is a one-time thing, then a payday loan might be beneficial to you.  However, if you are already on shaky financial ground, reconsider the payday loan option.  Take steps to ensure that you are never caught up in a situation where a payday loan would be your only solution.  You may have to find a part-time job or negotiate with your creditors. Skip the take-out pizza or drive-thru lunches. Bypassing a few luxuries and putting what you save in the bank can really add up to a nice emergency fund.

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