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Like most things, payday loans have both good points and bad points. Whether the good outweigh the bad or vice versa is, or should be, the determining factor you should use in deciding whether taking out such a loan is a good thing for you or a bad thing. In some cases, it may be the only choice you have. But, in most cases, you should make an informed decision as to whether you want to take out such a loan or not. I will try to provide you with some things you should think about should you be considering taking out a loan of this type.

On the positive side, online loans are usually fairly easy to get, unless you are in a situation where you cannot provide the necessary collateral or convince the loan provider that he has a good chance of getting his money back, plus the interest he is going to charge, from you when the loan comes due. If you have borrowed money from the same lender previously and have been good about repaying the loan on time, or maybe even before it was due, then you’ll stand a much better chance of qualifying for the loan than might otherwise be possible. Another consideration that may very well factor into the process of getting approved for the loan is who your employer is and the amount of the loan you are requesting. If the employer is an established business or individual and the lender can expect that entity to not be in danger of closing up before the next paycheck is due or giving you a paycheck that may “bounce” when cashed, that will very likely work in your favor. Along the same line, if the loan is for an amount that is a smaller percentage of what your take-home pay normally is, then you’ll stand a better chance of getting that loan than if the loan is for a greater proportion of that paycheck!

Notice that I keep referring to your paycheck. In virtually every case, when you apply for a payday loan, you’re going to have to provide proof that you actually anticipate having another paycheck coming in! That lender is almost assuredly not going to “take your word” that you’re employed where you say you are and you are going to have to provide proof of employment and that you have sufficient income to pay back the loan when payday does roll around. Proof of that is probably going to consist of you showing the lender one or more past paycheck stubs so he can see proof of your employment and income, so if you’re looking at this option, make sure you bring your last couple of pay stubs with you. Better yet, call the lender in advance and see what documentation, etc. he is going to want to see before you go apply for the loan. It may save you a trip back home again.

The negative side of payday loans is their high cost. You are going to end up paying much larger interest rates for payday loans than you are for just about every other type of loan that is out there and, unless you have absolutely no other choice in the matter, payday loans are probably the worst possible choice for you to make to get out of your financial straits. Where personal loans from a bank or credit union may have interest rates of as low as 6% or 7% in some cases, they may easily get as high as 10-15% or even higher depending on credit rating, stability in your job, history with the financial institution you’re dealing with, etc. But even the highest rates I mention here are way below what the normal payday loan rates will probably be. Payday loan rates are among the highest rates anywhere with interest rates well above 100% not being uncommon. (Consider the fact that the true interest rate on a $300 payday loan can be as high as 900%!)

An additional fact working against payday loans is that often, payday loan lenders are not regulated by state banking regulations and may not even need to be licensed. This varies from state-to-state as there is no nationwide consistency in the regulation of such lenders.

If you are in a situation where a payday loan is one of the things you are considering, you should look first at one of the half-dozen or so alternatives such as negotiating a payment plan with your creditors, a line-of-credit with a finance lender, overdraft protection if you have a checking account, a short-term loan from a credit union, a “secured” credit card which will let you establish a credit record and allow you to qualify for a lower-rate unsecured credit card or, lastly, approaching your employer about the possibility of an advance on your paycheck. Since this last option will entail no credit charges, it is probably the best of all the options if it is not a recurring situation.

Payday loans should be considered as a “last resort” if you are experiencing money problems as they will cost you much more in the long-run than they are worth. In almost every instance, getting help and advice from an expert at a local non-profit specializing in credit problem resolutions will be your best bet as a first step in getting out of your financial predicament.