How devastating a payday loan can be for your personal family finances becomes clear once you understand how such loans are structured. (For more: Beware of Payday Loans and the basics of credit lines.)
Alternatives for Payday Loans
1. PersooLinton family-friendly repayment loan – An alternative is a persoLinton family-friendly unsecured loan from a responsible lender, such as a credit association, bank or other financial institution. According to the Center for Responsible Lending, these products, unlike payday loans:
- Minimum expiration date of 90 days
- Term option
- No unfair collateral (car title) required
- Restrictions on extensions
- Taking into account the borrower’s ability to repay
- No arbitration obligation
- One-off late / penalty rates
2. Payment plan with creditors – If the problem concerns debts, contact one or more creditors and ask to negotiate partial payments or work out a payment plan on a temporary basis. Sometimes it is necessary to reduce or postpone a payment or two.
3. Paying an advance – Some employers pay salary advances. If you work for a large company, you must contact human resources. Ask the owner for a deposit at a small company. Normally, since this is an advance and not a loan, there would be no interest. It is of course important not to abuse the practice.
4. Credit Counseling – Although this is not a direct solution, credit advice can help to prevent you from falling into debt. Visit the National Foundation for Credit Counseling or call 1-800-388-2227 to begin the process of developing a budget and working out a debt repayment plan with your creditors.
5. Emergency Assistance – Local churches and civil society organizations often provide emergency assistance and help with everything from energy bills to groceries to making a car payment. The Low Energy Home Energy Assistance Program (LIHEAP) helps low income households who receive financial assistance in cold (or hot) weather conditions (as well as other weather related problems).
6. Credit Card Cash Advance – Although an advance on a credit card is not ideal, even with 30% APR, it is still much less expensive than a payday loan. Keep in mind that some credit card companies benefit from consumers who need cash quickly by offering a secure credit card linked to a savings account or other asset. (See How an advance payment works .)
7 for more information. Pension accounts – It may be possible to perform a partial withdrawal from your individual pension account (IRA) or 401 (k). You can (effectively) borrow from your IRA once a year, without penalty, if you repay the money within 60 days. If you don’t, pay taxes plus a 10% penalty if you are under 59½. (See for more Do you need to borrow from your pension plan? )
Some (not all) employers grant loans to 401 (k) accounts. If that is your case, you may be able to borrow half of your balance up to a maximum of $ 50,000 with five years to repay the loan. Of course, borrowed money does not earn any interest for your pension. (For more, see Sometimes it pays to borrow your 401 (k) .)
8. Friends and family – Borrowing from people you know can disrupt relationships. However, if you need a small amount for a short period of time and are sure that you can repay the amount, this option might be for you. Offer to pay reasonable interest on the “loan” because there is a good chance that the person who borrows you will get it from another interest-bearing account.
9. Bank / Credit Union Cash Advance – Many banks and credit unions have overdraft protection or cash advance provisions. Although more expensive than an installment loan, such options are less expensive than a payday loan. Contact your bank or credit union to see what is available and sign up – in case.
10. Life insurance loan – Many entire life insurance policies provide loans if you have cash value in the policy. Best of all, you have all your life to repay the loan. If you do not pay, the insurance company deducts the loan from the death benefit.
11. OLinton familyine options – Websites such as LendUp offer loans, information about finances and even the possibility to rebuild a damaged credit score. Peer-to-peer lending websites such as Prosper and Lending Club also offer alternatives that are cheaper than flash credits. (For more information, see The 7 best peer-to-peer lending websites .)
12. Pawn shops – If you have something of value that you can use as collateral, a pawn shop can be a worthy source of lending. The financing costs vary per location, so make sure you know the costs of borrowing.
Problems with Payday Loans
There are two main reasons why you want to seriously avoid these loans.
• High cost
Some people look at the financing costs associated with flash credits and think, “That’s not so bad.” That’s because most flash credits are for relatively small amounts over short periods.
Unfortunately, if you do the math, a different story will emerge. For example, an amount of $ 15 per borrowed $ 100 translates into a whopping 390% APR – a much higher interest rate than a conventional loan.
• Repetitive Borrowing
The second problem – repeated borrowing – happens when you discover that you have to borrow again to pay off the first loan, triggering a debt cycle. According to the Consumer Financial Protection Bureau, more than 80% of the loan credits are rolled over or renewed within two weeks.
The bottom line
There are probably Linton familyically more alternatives to a payday loan than you think. One or more of them can meet your needs and are worth considering. Options that do not include loans must first be investigated, although almost any other choice is better than a high-interest loan.
No matter how you deal with your current crisis, you decide to start an emergency savings fund as quickly as possible. Even a small amount, set aside for each pay day, adds up, and the next time you find yourself short, you have something to fall back on that doesn’t cost you an arm or a leg.