Payday Loan Alternatives
Payday Loan Alternatives
Running a little short on case before the next payday? Privately owned check cashing and finance companies offer quick and convenient loans to cover expenses until the next payday. These are called payday loans, also known as cash advance loans or check advance loans. They are simply defined as short term loans that are usually repaid on the borrower’s next payday. It sounds simple enough but there are hidden dangers in borrowing such as high interest rates and finance charges. In some cases borrower’s roll the loan over and extend the terms so that the loan is repaid on the following payday instead of the originally agreed upon date. In these cases the finance charges double or even triple, depending on the life of the loan. For instance, let’s say the fee to borrow $100 is $15. If the loan is carried over for two extra weeks it then costs $45 to borrow the original $100.
The Federal Trade Commission, the nation’s consumer protection agency, warns against the use of payday loans. If you find that you are struggling to make ends meet from paycheck to paycheck, thing about the following alternatives:
- Shop around for the best interest rates and terms at places like local federal credit unions, a small loan company or a cash advance on a credit card.
- Contact creditors or loan service agencies if you are having trouble paying your bills and ask for more time. Many lenders are willing to work with consumers whom they believe are acting in good faith. Be sure to inquire about late fees, higher interest charges or other fees associated with making late or extended payments.
- Inquire with local consumer credit counseling agencies or service centers to see if they can work with you and your creditors to make repayment plans that are more affordable, decrease interest rates or extend the terms of the loan. These not for profit credit counseling agencies will also work with you to create a budget. Each state has these services in place at little to no cost to the consumer. These agencies can be found through your employer, credit unions or housing authority.
- Create a realistic budget including daily and monthly expenditures. Be sure to factor in for savings and emergencies. Avoiding unnecessary purchases such as that morning coffee on the way to work will save hundreds of dollars per month. In order to avoid being prisoner to payday loans, live and spend only within your means.
- Find out if your banking institution offers overdraft protection on your checking account. This option will pay for checks that would normally cause your account to be overdrawn and typically the bank will not charge the customary overdraft fee. Be sure to ask about any other fees that may be associated with this type of banking option.
At the end of the day, cutting down spending, using a realistic budget and getting assistance to work with creditors if necessary are all ways to avoid payday loans. If you still find yourself in a pinch and need to take out a payday loan, be sure to only borrow the amount needed and pay it off immediately with the very next paycheck so as not to run up extra interest and fees.