Are Payday Loans a Scam?

Payday loans can also be known as cash advances, payday advances or paycheck advances. They are short term loans, where the amount ranges from $100 to $500 but the amount can sometimes be higher. A borrower can expect to pay from $15 to $30 per $100 borrowed. When thought of in terms of APR this translates to rates of 300 to 800 percent.

Paycheck advances have received a lot of negative press recently. This is probably because of the questionable practices done by payday advance institutions. The practice that receives the most criticism is the high interest rates of paycheck advances. These high interest rates are charged as the loans are much smaller than normal loans and borrowed over a short time period meaning that cash advance institutions would not make a profit if they had rates similar to normal loans.

One other reason payday loans are sometimes thought of as scams is that borrowers can potentially end up stuck in a debt spiral and find it difficult to pay back the loan. For this reason, borrowers must make sure they are able to pay off the loan come their next payday. It is very important that borrowers have a plan in place and do not take out a cash advance (or any loan) without proper consideration.

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

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

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