A payday loan is a sort of cash advance loan. The word payday loan comes from the fact that you borrow money and then repay the lender on your next payday. However, the lender might impose high payday loan interest rates, up to 400 percent in extreme cases. Payday loan lenders are viewed as opportunistic by many financial experts, and opting out of a payday loan might trap you in a debt cycle. Payday loans can aid in an emergency, but they can also put a strain on the borrower’s finances. As a result, if you need money immediately, you should look into other options. Therefore, you need some alternatives to save yourself from expensive payday loans.
Reasons to not take any payday loan
- Renewals generate a debt cycle– Some borrowers find it difficult to repay a payday loan on time because the lump sum is due relatively quickly. Many states allow payday loans to roll over if you cannot pay back the loan by the due date, according to the Consumer Financial Protection Bureau. The lender charges higher costs each time a loan is rolled over or a new one is taken out, creating a debt cycle that can be difficult to stop.
- High-interest rates and does not build your credit– You may only be able to borrow a few hundred dollars depending on your state. It may not be enough to cover your emergency expenses. A payday loan’s interest rate is normally at the higher end of the short-term loan spectrum. A payday loan’s APR (annual percentage rate) might be as high as 400 percent. Paying your loan back on time will not help you improve your credit because payday lenders do not normally disclose your payment activity to major credit agencies. However, not paying your loan back on time might seriously harm your credit.
Some payday loans alternatives
Make a Payment Plan with the Company
If you are having difficulties paying payments before taking out a payday loan, try if the firm you owe money to will work out a payment plan with you. Although speaking with the corporation can be difficult, it is preferable to skip a payment. So, as an alternative to a payday loan, see if you can set up a payment plan. You may be able to make a partial payment now and the remainder later. If you have federal student loans, contact your loan servicer to see if you may put them on hold or defer payment. Consider an income-driven repayment plan, in which your monthly payments are reduced to a tiny percentage of your disposable income.
Take a Look at Your Savings
Savings can be difficult to come by and can take a long time to accumulate. When your savings account finally grows, it might provide you with a sense of security. Consider digging into your savings account before applying for a payday loan if you are fortunate enough to have one. This is one of the reasons why you should open a savings account in the first place. Things happen, and your money can serve as a safety net. Rebuilding your savings account is therefore preferable to repaying a payday loan. Taking money from your savings account is the same as taking out a loan for yourself in the future. Would not it be better to pay yourself back rather than a predatory lender who charges 400% interest on a payday loan?
Borrow money from a bank or credit union for a personal loan
You do not want to choose a payday loan as your first option if you have debts to pay off or need to fund your essential necessities. A personal loan from a bank or credit union can be an option. A bank or credit union may often give a lower rate than a payday loan company if you have good credit. Is it possible to acquire a loan with terrible credit? It depends on the lender, however, your chances of getting approved may be reduced. If the financial organization provides you with a loan with a good rate and reasonable payback terms, a bank or credit union is a smart choice.
Take a loan from a family member or a friend
This is not an option for everyone, but if you have trusted family or friends who can lend you money, you should consider doing so. Will your parents give you a no-interest loan? Do you have a close buddy who can keep an eye on you while you get your act together? If you do this, make sure you know how much you will owe and when you will pay it back. This is a risky path to take, and you do not want to burn any bridges or lose any ties with family or friends, so think it over carefully. However, if it is a no-strings-attached solution, it can help you avoid a payday lender.
Avoid this trap as much as possible
Payday loans might help in a need, but they can also place a strain on a borrower’s budget. Lenders may charge hefty interest rates on payday loans, up to 400 percent in extreme situations. Choosing not to take out a payday loan could put you in a financial trap. See if you can put up a payment plan as an alternative to a payday loan. If you have federal student loans, you should seek assistance from your loan servicer. In the same amount of time as it takes to build up a loan, rebuilding your savings account is better than taking out a loan. A bank or credit union personal loan may be an alternative. If you have strong credit, a bank may be able to offer you a lower rate than a payday lending provider. If a financial institution offers you a loan, you should take advantage of it.