This week has seen payday loans come under criticism from debt advice groups who claim that some companies are charging excessively high interest rates on this type of loan. The debt advice groups are calling for a cap on interest rates for payday loans however, the Office of Fair Trading (OFT) responded to this by stating that payday loans would be covered by investigations of the issue of responsible lending and that although the loans, often used by people to tide themselves over until they get their wages, generally attract high rates of interest, the businesses offering them are properly licensed, professional and responsible.

UK payday loan providers also responded to the criticism by explaining that higher interest rates are levied on payday loans to reflect the level of risk being taken by the lending companies.

As one would expect, the payday loan companies claim they are providing a valuable service to customers who may be unable to get credit elsewhere. However, this claim is supported by the rapid rise in popularity of the products offered by the payday loan companies as they provide a real alternative to unauthorised overdraft charges, pawnbrokers and loans from friends or family.

Payday loans do not involve a credit check and for this reason they are sometimes referred to as bad credit loans. No credit check means that these cash advance type loans are therefore available to those who are unable to get other forms of credit such as credit cards, traditional long-term loans or overdraft facilities. The loan companies do however require proof that the applicant is currently employed and that their next pay cheque will be more than sufficient to repay the loan in full.

Many payday loan customers report that by getting a payday loan they are able to resolve their immediate cash-flow crisis and buy themselves a little bit of breathing space in which to assess their finances and to get advice on how to manage their money better.

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It would be lovely to have a crystal ball to be able to see into the future but alas such things are merely the stuff of myths and legends. In reality, when it comes to predicting our finances we have to rely on known facts and try to set aside enough money to cover the events that cannot be predicted. Since this is more of a guessing game than an exact science, it can be extremely difficult to accurately predict future demands on our finances. The current economic climate makes the task even more onerous, with many people facing the threat of redundancy, pay freezes or cuts to their working hours.

It is therefore unsurprising that fewer people are willing to enter into long-term loan arrangements given that these require a lengthy commitment to regular repayments. Sadly, without the afore mentioned crystal ball, there are often times when unexpected circumstances require more cash than we have in either our current account or savings account. There is no need to get into long-term debt to resolve situtations like these as the financial institutions do offer short-term lending products.

One such short-term loan product which is increasing in popularity is payday loans. This is where the lending company furnish an individual with a cash advance on their salary on the condition that the cash advance, plus interest, is repaid in full as soon as the individual’s next salary payment is made. This means that the absolute maximum duration of the loan agreement is 30 days.Not only does this mean that long-term debt can be avoided but there is the added bonus that the repayment is due at a time when the borrower actually has sufficient funds to make the repayment.

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It can be almost impossible for those with a bad credit history to get loans or credit cards. Frustratingly this can be as also true for those who have actually cleared that debts as for those who still owe money. This is because credit card companies and loan providers carry out credit checks each time someone applies for credit. The purpose of these checks is to examine our credit history which details any credit we have ever had from credit cards, loans to mortgages. Not only can companies find out exactly how much debt we currently have, they can also determine whether we have ever defaulted on our loan, credit card or mortgage repayments. Thus, even when someone has cleared their debts, they may still have a poor credit rating if they have previously defaulted on their repayments.

When it comes to applying for a payday loan, a bad credit history will not be a barrier to approval. This is because payday loan companies do not carry out credit checks on those applying for a cash advance on their salary. Payday loans are extremely short-term loans and the loan companies will demand repayment of the total loan amount on the very same day as the borrower next gets paid. The brevity of the loan term together with the fact that it is simply an advance on the borrower’s salary makes a person’s credit history irrelevant. The primary qualifying factor is the value of the applicant’s pay cheque and the date on which it will be paid.

Provided that an individual can submit of proof of their id and address together with copies of their most recent payslips and bank account details, they are eligible to apply for a payday loan, irrespective of their credit history.

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