Payday Loans – Benefits and Drawbacks

By defitintion, payday loans are small-pound loans (commonly up to £1,500) with a half-month term that’s due in a lump-sum payment on the client’s next day. How does it work in reality? Is a payday loan good or bad? Since it’s really not easy to answer these questions, in this article I’ll try to list and explain both the advantages and the disadvantages of “short-term” loans.


Payday loans are really easy to access, which is undoubtedly their biggest advantage. Short-term loan lenders are often available 24/7 and they offer online applications. On the other hand, it takes time to apply for a traditional loan and, sometimes, people simply don’t have enough time to wait.

While a traditional lender commonly requires your photo ID, credit check and proof of income, payday lenders have fewer requirements. Good credit doesn’t have to be approved, because “fast cash” loans don’t check your credit history. That’s why some people call payday loans “bad credit loans”.


A payday loan is usually expensive. Although that depends on the state, “short-term” loans can have really high interest rate, up to 700% in comparison with up to 38% for traditional loans.

Another drawback of a payday loan is the fact that they can trap you in a so-called debt-cycle. Statistically, 25% of payday loans are borrowed approximately 10 times. If you happen extend a “fast cash” loan, a lender will charge additional fees.

Finally, a payday loan won’t help you build credit, since it doesn’t report to the credit bureau.

Bottom Line

If you need cash and you need it now, it’s sometimes advisable to fill out a few-minute application to get what you need through a short-term loan. Here, you need to ask yourself whether you’ll have enough money to pay it back in 2 weeks. Don’t choose this option just because it’s the quickest way to get money, because you can end up paying for this “fast cash” loan for months or even years.

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