There is endless rhetoric swirling around the subject of payday loans, some good, most of it bad. Terms like "legal loan sharks" are often bandied around with obvious disdain and negative stories aren't in short supply. However, for every negative there ought to be a positive, so what is the truth about payday loans and their financial impact?

Firstly, there's no way that you can sugar coat their potential impact. Indeed, any payday lender worth their salt will strive to highlight the potential dangers of short-term borrowing - after all, it's not in their interests to have customers that are unable to repay. As soon as you find yourself in a situation where you're unable to repay within the agreed timeframe, problems can arise.

What happens when you default?

The consequences of defaulting can be very costly indeed. As well as a standard charge, which could be in excess of £20, the payday loan will also be rolled over into the next month. This means that additional interest will be added to the total amount outstanding, leaving you with even more debt. The sooner you can halt any such slide, the less you will end up spending. Conversely, the longer you leave it, the more charges will mount up.

This can be a crippling cycle for anybody who is already struggling financially and isn't likely to have the funds available to repay in full any time soon. Sadly, it often results in credit agreements being set up between the lender and the borrower, whereby interest is suspended while a workable repayment plan is agreed. Failure to reach any such agreement may then lead to repossessions, albeit in only the worst cases.

As mentioned, it's difficult to promote any positives without first accepting the negatives. However, despite what many believe, payday loans can actually help in certain circumstances, indeed they can even provide a vital lifeline.

At this point it's important to remember that all circumstances are different. While one person may enjoy a spotless credit rating and have access to almost unlimited finance, others aren't so fortunate. Sometimes this is through no fault of the individual either, they may have been a victim of credit fraud or missed a few bills a couple of years ago when they were struggling. Either way, having a black mark against your credit profile can make it incredibly difficult to access loans, overdraughts or credit cards.

So let's imagine you have just received a sizable bill and it's due before the end of the month and you know you can't pay it - what do you do? You may only be short by one or maybe two hundred pounds, but if you aren't able to get hold of it and the direct debit defaults, or you simply miss the agreed payment date, suddenly a small issue can present a major problem.

In the case of a direct debit, if your account doesn't have the required funds, you may find that you receive a charge, both from your bank and the intended recipient. These can total up to £20 individually, so can quickly add up. Equally, this will have a negative impact on your credit rating - leaving you with further difficulties when it comes to accessing finance in the future.

So if you're very careful, a payday loan - as well as any other form of loan or credit - can help you to avert a much bigger problem, as well as save a few pounds. Again though, you need to be extremely careful and only borrow what you can afford. By continuously borrowing to cover other debts, you will only be papering over much more sizable cracks.

Therefore, in conclusion, payday loans can be a solution to debt; however, they can also be the cause of further problems. The onus is squarely on borrowers to take care and to judge their need against the risks involved. So always take care and don't jump in without due care and consideration.