A payday loan, or cash advance loan, is a short-term, high interest loan designed to be repaid within one or two pay periods. In return for the loan, the borrower either provides a post-dated check or direct debit authorization to their checking account. Because these types of loans do not require a credit check, they’re very easy for people with poor credit or financial problems to obtain. It’s also very easy to fall into a never-ending payday loan cycle that leads to 400% interest and even more financial burdens.
These types of loans often become proverbial money traps for consumers who are stuck in a financial bind and feel they have no other alternatives. You do have other options, however. Payday loans should be used with extreme caution and should be considered a loan of last resort – only if you can afford to pay the loan back in one to two pay periods. Otherwise, you should consider a more affordable and consumer friendly alternative.
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Alternatives to Payday Loans:
- Negotiate a payment plan with the creditor. If you’re having trouble with your payments or need an extension, call your creditor or utility company and ask for more time. You’ll be surprised how many are willing to work with you and offer an extension.
- Ask for an advance from your employer. If you’ve had a financial emergency, consider talking to your employer for an advance on your salary. The benefit of an advance is that it’s not a loan, it’s your money – you’re just getting it sooner than you normally would have. It’s much cheaper than a payday loan because there is no interest – it’s not a loan.
- Borrow money from your savings account. If you have a savings account or emergency fund, consider tapping into it. If you don’t have a savings account or an emergency fund, make it a point to start one so that you have a cushion when life throws you
a curveball. Even if you start with $10 a week, every little bit adds up. It can be a lifesaver when the unexpected happens.
- Consider a credit union loan. If you’re a member of a credit union, talk to your member services department. Many credit unions offer small, short-term emergency loans to help their members get back on their feet. Credit unions offer low-interest loans that are much more affordable than those from traditional banks – and their approval process is more flexible.
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Category: Payday loans