When might a payday loan be useful?

We have all been there. After a particularly expensive month; perhaps there were a few family birthdays, a holiday or Christmas, we have run out of money earlier than expected and payday seems a long way off. Most of us will somehow scrape through until the money comes through but for some people the money needs to come much sooner.

Your rent or mortgage may be due and there just isn’t enough money to cover it. This could mean you and your family being out on the street with nowhere to live unless a quick solution can be found.

In this type of unforeseen circumstance, some may turn to a payday loan to get hold of money quickly and easily. A payday loan is where you are lent small amounts of money which you expect to be able to pay off in full when you are paid again or on a short term basis. They can help where defaulting on a bill or outstanding debt could lead to a large financial penalty and usually have a minimum and maximum borrowing, which varies between providers. Rules on the loan can also be more relaxed than other lenders – for example, a bad credit history or relatively short length of time spent in employment may not be a barrier to being approved.

However, interest rates can often be high and are not based on an annual percentage rate. The longer a loan is not paid back – if an individual encounters another problem or cannot pay the money back immediately – the more this can mount up. This can create more problems and usually payday loans are not recommended as a long term solution to financial crisis.

Other options a person in this circumstance could consider include overdrafts, loans or a credit card.

Each situation is different, so it can be useful to seek advice from an expert before making a final decision on taking out a payday loan.

If you want to know more about payday loans why not ask AnswerBank Busienss and Finance.