Payday loans are small and very short term loans issued to anyone who has a job. In other words, the loan is extended to you, on your promise of repaying the loan plus fees and interest on your payday. If you have employment, you qualify for a payday loan. As simple as that? Yes.

The loan also known as cash advance loans. The term explains the loan. You are given a cash advance until your payday. Payday loans have some merits or advantages. However, the demerits or disadvantages far outweigh any merits such loans have.

First, let’s discuss the merits of a payday loan. It is easy to get a loan. You don’t have many formalities to meet. Just fill an online application form and you can get $100 or $500 in your checking account in a matter of a few hours.

There isn’t any tedious application process. You don’t have to wait for several days for the loan to get approval. This is the biggest attraction of payday loans. There will not be any credit check. You qualify for a payday-cash advance loan, even if your credit history is a disaster. Since there aren’t any credit checks, your credit reports will be unaffected by your taking any payday loans.

How To Apply For A Payday Loan

All you have to do is apply for a loan by filling up an online form at the website of the lender. You will also have to prove your employment. Once you prove your employment, you will receive the amount you apply in your account in a matter of hours.

The lender will take the amount from your checking account, together with applicable fees and interest. The amount you can get as a loan is limited by local rules. In most cases, you can get $200 or $300 as cash advance. Depending on your state, the maximum amount you qualify varies.

In addition, the working of payday loan companies is highly regulated throughout United States. So, check with your lender to identify how much loan you qualify for. Now let’s talk a little about the negative sides of using a cash advance loan.

The fees are incredibly high. When compared to the interest you pay on loans and credit card debt, the fees or interest you pay on payday loans are very high – more than 200%, which can go up to 400%.

Consider this example: You take a loan for $100. The fee is $15 for two weeks. The APR (Annual Percentage Rate) is 390%. In other words, if you extend that $100 loan for one year, you will have to pay $390 as fees, while still having a debt of $100.

The payday loan companies never advertise the interest rate. Instead, they talk about this fee only. You think you are paying only $15 as fees. The fact is, that $15 is a huge fee to pay. This one factor alone is enough to make you run away from payday loans. However, people do take payday loans because their financial condition presses them to.

Failure To Repay Can Lead To More Difficulties

Sometimes the lender may allow you to extend the credit period for an additional fee. These fees can eat up into your finances and it will become increasingly difficult for you to repay the small loan.

If you are pressed to take a payday loan, it will be because your financial conditions are in a very bad condition. If you take a payday loan, it is only going to make your situation worse. You are unable to repay your credit card bills, home loan, car loans, etc. Then, an emergency comes – like a flat tire or a hospitalization. You have nowhere to go. You see this payday cash advance loan offer. You jump in. That is the start of a vicious cycle. If you don’t repay, the lenders can even initiate criminal proceedings, including check fraud against the borrower.

Your Credit History Doesn’t Benefit

The payday loan companies don’t report your repayment history to the credit reporting agencies. In other words, you can’t get any benefits by taking such loans. If someone tells you that you can benefit from taking payday loans, it is a lie. Just like the lenders don’t check your credit report, they won’t report your credit standings too.

Some companies claim they report your credit history. However, ask such companies if they report the history to Experian, TransUnion and Equifax. They won’t.

Alternatives To Payday Loans

If you are looking for payday loans, your finances will be in a very bad condition. Taking a new loan is the last thing you have to do at such conditions. If the situation is truly an emergency ask your employer to advance a part of your pay. If it is truly an emergency, you won’t have much difficulty convincing your employer. You can’t make this a habit though.

You can also ask your friends or relatives for a small loan. If it is an emergency, your friends are likely to help. You can also look for alternatives like credit card cash advance, loan from credit union, or home equity loan. Taking cash from credit card is not an acceptable strategy – whatever the emergency is. This is because of the high interest and charges associated with cash advance.

You can talk to local credit union to get some loans. Talk to your credit union about chances of getting a loan to get over your present financial situations. In most cases, you can get help. Most importantly, build an emergency fund. At first, make a fund of at least $1000. Keep it in a special account. And, use it only for an emergency. In fact, building an emergency fund is the first step to putting your financial life together.

In closing words, payday cash advance loan is not recommended under any situations. If you take the loan once, the situations will force you to take another loan and then another one. This is a vicious cycle you want to avoid. If you still find payday loan is the only option before you, go for it. However, make sure you repay the amount in full at the earliest, even if it compromises repayment of any other loan.