Many consider payday loans for Christmas

With Christmas fast approaching, many households could be considering payday loans as a way to tide them over into the New Year.

However, people need to ensure they understand the financial commitment they are making before taking one out, so that they are not overstretched and have the money to repay the loan.

A spokeswoman for The Money Advice Service said that while payday loans are a good option for people, they need to ensure they have exhausted all other possibilities first.

"Some lenders are advertising quick loans with the promise to put the money in your account within hours. You usually have to pay back the loan on your next payday, but some loans now last for up to 12 months. Although convenient, they are expensive," she explained.

There are a number of different ways to borrow money in the short and medium term, and each have their own pros and cons but individuals need to make sure they have done their research so they can make an informed decision.

She said that interest rates higher than 1,000 per cent are not uncommon so if payments are late, costs can quickly spiral.

New research by insolvency trade body R3 reveals that 3.5 million adults are considering taking out a payday loan over the next six months.

Furthermore, of those polled who had taken out a payday loan, 60 per cent regretted it and 48 per cent claimed to be in a worse financial position as a result.

Only 13 per cent thought that payday loans had a positive impact on their pocket.

"Having a financial buffer is crucial to weathering periods of difficulty.  If struggling to payday becomes a regular occurrence, seeking financial advice should be a priority over short term high interest credit," said Frances Coulson R3 President.

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2011-12-08 14:05:36 © Moneyextra.com