Are Payday Loans Really a Scam?

Payday loans can also be known as cash advances, payday advances or paycheck advances. These financial products are short term loans, usually the amount varies between $100 to $500 but the amount can sometimes rise to $1500. A borrower can expect to pay back an amount somewhere between $15 to $30 per $100 borrowed. When when you put this in terms of APR the rates are between 300 to 800 percent.

Payday advances have been given a lot of negative press in recent times. This is probably because of the questionable practices carried out by payday advance companies. The practice that receives the most amount of criticism is the high interest rates of paycheck advances. These high interest rates are placed because the loan amounts are much smaller than normal loans and borrowed over a short time and this means that payday loan companies would not make any profit by charging rates similar to normal loans.

Another reason cash advances are sometimes thought of as scams is that borrowers can potentially end up stuck in a circle of debt and find it difficult to pay back the loan. For this reason, customers must make sure that they can pay off their debts when their next payday comes. It is very important that customers have a plan set up and do not apply for a cash advance (or any loan) without thinking it through first.

As you can see, it is easy to see why payday advances are sometimes criticized. However, most applicants who make an application have already tried all other options available to them and oftenly the only solution they have left to sort out their finances is to obtain a cash advance. In this situation payday advances can be a good option and can actually save the borrower money when compared to credit card overdraft charges.

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The author owns a number of finance related sites. For more information and advice on no fax payday loans or faxless payday loans as they are often called, click on the above links.

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