Payday loans are short-term loans that can be acquired at any time, regardless of one's credit score or financial status.

Payday loans top the field in accessibility, reliability and speed: you can generally apply for a payday loan and cash it out within the same hour.

However, these advantages are tempered by several heavy disadvantages. Payday loans usually accrue high rates of interest. The United Kingdom's average annual interest rate for payday loans ranges from 30% to as much as 60%. Moreover, payday loans generally have very short repayment terms, generally from two weeks to a month (Hence the name - the loan should be repaid upon receiving your employer's next paydate).

Upon expiration of the loan, a 'payday borrower' can expect to repay his initial sum plus approximately 39% interest at the end of the month. This is almost double the charge of a corresponding credit card fee: however, bills derived from such sources as rent and rates are difficult to pay for via credit card.

Additionally a credit card may be unavailable due to defaults or a low credit score. Therefore, as stated above, payday loans are often the premier choice for situations in which borrowers will not have access to funds for a short time.

As the name suggests, payday loans are generally applied for by those who require money before their payday. Despite the annual interest rate on these loans occasionally rising to the high double digits, the effective cost to the 'borrower' is only about 5% due to the small term.

Nonetheless, there have been cases of scamming in which borrowers have been forced to pay exorbitant fees to payday loan operators. To avoid these, one should take note of two key actions to take before applying for a loan:

1. Vendors are required by law to state their annual interest rate prominently. To find your effective cost, assuming a month-long term, divide this rate by 12.

2. Always make sure to read the fine print before applying. This is an obvious guide, but an often-overlooked one.

Overall, if you are prepared to accept the higher risks and fees, payday loans can be an excellent and accessible source of money.

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