Convenient Alternatives To A Payday Loan
It may look like a fantastic deal to take out a payday loan. But no, they may not be a fantastic choice. The expensive nature of payday loans make them unbearable to many consumers.
What makes payday loans expensive?
A very high interest rate
You might end up paying as much as 400% APR on payday loans.
Short repayment term
About 75% of clients who have taken out payday loans cannot pay back their debts within two weeks, and are thus compelled to take out an extra charge. Other smaller consumer loans have durations that are much longer.
A balloon payment
Compared to other consumer debt, payday loans are unique. Lump-sum payments can’t be spread out throughout the loan period. In two weeks, the full amount must be returned.
Extensions and rollovers
The majority of payday lenders’ earnings come from providing many loans to customers who are cash-strapped.
More than 90% of the revenue increase in the payday lending sector comes from rollovers.
More than one lender can lend concurrently
A number of customers find themselves caught in the “treadmill of debt”. They therefore end up taking out another payday loan to pay off the previous loan. As a result, the consumers end up accumulating more and more fees.
Lenders can encourage you to borrow more than your credit history permits, especially when it comes to payday loans. This is because the loans are easily accessible even to those with poor credit history. If the borrower is unable to repay the loan, lenders may impose repeated renewal fees.
Deferred cash disbursement procedure
Failure to pay the loan check on time may result in several penalties including late fees.
Lenders impose high fees and interest rates in a way that you cannot be able to sue them.
Alternatives to payday loans
Even if your rent is late, creditors might still track you down if you’ve used payday lenders. So rather than getting into more financial hardships, here are some alternatives that you can consider:
- Get a cash advance from your employer
- Go for credit counseling services
- Apply for government assistance
- Get protection from overdrafts
- Borrow money from credit unions
- Use credit cards for cash advances
Let’s discuss some of these alternatives:
Get a cash advance from your employer
Some businesses give pay advances on their employees’ paychecks. This is real progress, and it doesn’t constitute a loan. There is no financial interest on a pay advance. This makes them a perfect alternative to payday loans.
Go for credit counselling
If you are interested in developing a budget or devising a repayment plan, a consumer credit counseling organization can help. There are no fees, or fees are extremely minimal for these services.
Apply for government assistance
You may be eligible for different government assistance programs. These initiatives are created to aid low-income individuals who are financially challenged.
Protection from overdrafts
Many banks provide checking account overdraft protection. If you write a check and the bank moves money from your savings account into your checking account to cover it, the bank will likely pay you a $5 charge or nothing at all.
A line of credit often provides overdraft protection and generally has an APR in the range of 10 to 18 %
Financial loans given by credit unions
Many credit unions give loans of short time and modest amounts to its members. There is one North Carolina credit union that allows employees to take out a loan at 11.75% each year. This is 30 times less than a payday loan of the typical variety.
The credit unions provide members with free financial advice and a savings program that aims to help them regain their financial footing. Lower interest loans and rapid loan approval are also offered by other credit unions.
In contrast to payday loans, these loans provide higher repayment plans. Another feature of the mortgages they provide is that the payback time is longer, and payments may be made in installments.
Cash advances on credit cards
As opposed to a payday loan, the interest on credit card cash advances is around 30% cheaper. If you have less than stellar credit, the credit card issuers are more inclined to deal with you. Find out whether you’re eligible for a credit line and do your homework. You should also look into secured credit cards, which offers another alternative.
Borrowing from the military
Many businesses provide loans for active-duty military members and former military people. Payday loans are much more expensive, costing around 10-13 times as much as modest consumer loans.
Personally-arranged consumer loans
APR for short-term loans offered by small-sized consumer finance businesses can range from 40 to 60 percent. Due to their costs, these loans are a better alternative to payday loans.