Payday Loans Can Help Alleviate Short Term Financial Woes

There can be little doubt that payday loans have received a lot of bad press over the years. But despite the heavy criticism leveled at the high interest rates on low loan sums, there can also be little doubt that, properly used, these paycheck advances, as they are also called, can play a significant part in alleviating the financial pressures that individuals can find themselves in.The whole structure of the loans place them in a completely different category to other aspects of financial lending. The very fact that they are loans repaid on payday means they are amongst the shortest term loans available. Basically, they are parachute payments that are design to cover the borrower for essential debts but which can be repaid in full within a matter or weeks.Understandably then, payday loans are mostly sought by low income workers who have a limited amount of excess funds to spend on extra or unexpected vital expenses, such as health bills, for example. However, there are definite risks that come with these paycheck advances, but equally advantages that make a real difference.The Risks InvolvedWhile statistics have shown that there has been a large percentage of defaults on payday loans, the reality is that there is always a degree of risk involved in any loan agreement. The crucial difference is that loans repaid on payday are designed specifically to advance a percentage sum of an imminent income. What this means is that the repayment only needs to be taken from the salary when it comes though.The problem with defaults on paycheck advances is that the repayment agreement is not adhered to, but the term of the loan is so short that restructuring the repayment schedule is not possible. However, the assurance that the borrower would direct perhaps USD200 of their next paycheck to the lender, is simply not honored.The result is that losses on payday loans elsewhere must be covered and so interest rates are high. However, what is equally true is that the actual interest sum is relatively low, with just USD15 per USD100 on a USD500 loan is manageable. It only seems extremely high when presented as an APR, which can work out at 390 percent.Why Seek Payday LoansThe question then is why anyone would want to apply for such a loan. Well, much of the default ratio is down to borrowers, who are unable to guarantee that loans repaid on payday, stating that they can. But there are many who do not misuse the loan option.For them, there is an emergency that needs to be met and a paycheck advance is the best way to ensure it is paid. Often, there is no logic in seeking even a short term loan from a bank and committing to several months of repayments when the full amount can be repaid once a paycheck is received.The advantage of payday loans then is that the debt is already covered, but there are insufficient funds to pay the emergency expense immediately. All that is needed is to gain access to the cash that would otherwise be spent on the pay check. Sticking to this philosophy will ensure no financial grief.