When an emergency loan is needed to tied someone over between pay days then pay day loans can offer a quick solution. They are however preceded by a rather seedy reputation which is by no means always justified. In essence they are the modern version of pawn shops and can be used by those just getting by, or abused by those who are never going to get a handle on their finances.
Like any financial product a pay day loan can be misused. Used wisely they can be of great use to a borrower who understands the product and adheres to the terms and conditions. Much has been said to totally vilify the use of pay day loans, and this has been played up by the institutions which regard them as competition.
However pay day loans are now regulated, just as credit cards have had to be, because of certain usurious practices. Certainly it is true that until new credit card reforms were introduced in 2010 some of the credit cards on the market were equally as exploitational as some of the pay day loans. There are always going to be some who pay no attention to the type of finance they sign up for in their immediate desperation for quick funds, and thus fall foul to the system.
The cons of pay day loans are seen when people fail to understand the product and are remiss in paying them back in a timely fashion, and take out additional pay day loans to pay off the first one, and thus become caught in a cyclic debt trap. Credit cards have been abused in exactly the same way and the end result is never pleasant once the debt trap is fallen into.
Those who understand what they are dealing with in using a pay day loans, and who take them for their intended use, can find the product suits them. Instead of having an open line of credit which may tempt them into further use, they can borrow a set amount of money for a short period of time and know exactly how much it will cost them.
Careful shopping around for the right pay day loan product can reveal some which are fee free or very low in fees, and provide funds needed for an emergency situation. They are very convenient for those who have a bad credit history or no credit history as they are not dependant on a credit check being carried out by the lender; it is the ability to repay the short term loan from current income which is relevant to the lender. They can also be used by those who need funds but have no wish to be credit checked as they don’t want credit applications showing up on their Fico file at that time.
Pay day loans are certainly gaining in popularity and their fees begin to look more reasonable when one compares the cost with some of the extra charges which credit card issuers are imposing on some cards. As long as pay day loans are only used occasionally and not as a constant means of getting by they are becoming an increasingly viable product as they begin to move more into the mainstream.