What do you do if you have completely run out of money, have bills to pay and it's not yet payday. One alternative is to get what is referred to as a Payday Loan. In a nutshell, a payday loan is a short-term loan only given to those who are gainfully employed and able to provide proof of regular pay-checks.

It sounds like the ideal answer, you know that the money is coming in the form of your pay-check and your loan will be able to tide you over until you are paid. At this time you will pay back the lender, generally via a post-dated check. What could be simpler?

Payday loans are also referred to as cash advance loans, check advance loans and deferred deposit check loans.

The downside to a payday loan is that rates of interest on this type of loan are generally comparatively high. The lender will either charge a fee or a percentage of the amount borrowed. Like all other types of credit, the cost of a payday loan must be disclosed to the borrower in writing. The finance charge should be disclosed in dollar value along with the annual percentage rate or APR.

When you look at this information, you will realise that this sort of credit is indeed a very expensive way to go. For example, you may wish to borrow $100 and write the lender a check for $115 to be cashed in say 14 day's time when you are next paid. In this case, the finance charge on the loan is $15 which doesn't sound too bad. However the APR is equivalent to 391% which is extortionate. If you continue to roll the loan over which many lenders will allow you to do, the finance charge will rise accordingly.

If you need cash urgently, it is wise to consider your options. Assuming that you are employed, there are certainly better choices available. You should look around for the credit offer with the lowest APR. Perhaps you could look at a small personal loan from your bank or credit union, an advance from your employer or a loan from friends or family. You may also want to consider a cash advance on a credit card although that may incur a higher interest rate than the other options mentioned.

It may help to look at the reason why you need a short term loan. Is it because of poor budgeting and not saving any of your income? If this is the case, it may be wise to work out a debt repayment plan with your creditors and work on developing a budget. There are a number of free or low-cost credit counselling programs who will work with you to put together a budget.

Although a payday loan can seem like an easy and convenient option, it is important to realize that it is an option with serious downsides. If you do decide to go this route, borrow only as much as you can afford to pay back with your next pay check and make sure that there is enough left in that pay check to get you through until next payday.

Sue Taylor is the webmaster of several finance sites and has assisted in developing budgets for people struggling with their finances. Refer to http://www.thepaydayloansite.com.