Are Payday Loans a Scam?

Payday loans are sometimes also known as cash advances, payday advances or paycheck advances. These financial products are short term loans, where the amount of the loan ranges between $100 to $500 but the amount can sometimes rise to $1500. A customer can expect to pay back between $15 to $30 per $100 borrowed. When you think about this in terms of APR the rates are between 300 to 800 percent.

Payday loans have been given a lot of negative press in recent times. The reason for this is the questionable practices carried out by payday advance institutions. The practice that receives the most criticism is the high rates of interest of paycheck advances. These high rates of interest are placed because the loans are smaller than traditional loans and borrowed over a short amount of time and this means that payday advance institutions would not make any profit if they charged interest rates that are similar to typical loans.

An additional reason paycheck advances are often considered scams is that borrowers can potentially end up stuck in a circle of debt and find it difficult to pay back the loan. Because of this, borrowers must ensure they have the funds in place to clear the debts on their next payday. It is vital that borrowers have a plan set up and do not take out a payday advance (or any loan) without proper consideration.

As you can see, it is easy to see why payday advances are often criticized. However, most applicants who make an application have already tried all other solutions available to them and most of the time, the only option they have left to fix their money problem is to obtain a payday advance. In this situation payday advances can be very useful and can actually save the customer money when compared to credit card fees.

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

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