These days, many people are finding themselves in a financially challenging period, and seeking ways to help make ends meet and pay their bills. There are many ways to borrow money, such as a personal loan or credit card cash advance, but not all options are available to everyone.
The payday loan is one option that’s available to many people – you only need a job, a bank account, and some form of identification to get a loan. It doesn’t matter what your credit is like (or if you even have any).
But in reality, a payday loan is probably the worst type of loan – one that can trap the borrower into a long term debt cycle that is very difficult to escape.
What Exactly Are Payday Loans?
Payday loans are usually small amounts – around $100 to $1,500 – that have a short term duration, and you are expected to pay it back in full by the time that period is up. They can also be referred to as a “cash advance”, “short-term loan”, or “fast cash loan”.
Why Payday Loans Are A Bad Idea
So you need cash immediately, and think you can pay it back by your next pay period. Seems pretty straightforward, right? Sure, having easy access to money with few requirements can get you out of a tight situation, but in all, payday loans have more cons than pros.
For starters, they are astronomically expensive. On average, the interest rate for these loans is 400% (can be as high at 700% in some locations). To put this in perspective, standard bank loans usually charge around 4% to 36% in interest.
This interest rate creates a situation that, for most people who take out a payday loan, causes them to slip quickly into a debt trap. Borrowers find out that they cannot repay the loan as they thought because of the high interest, and end up rolling over their loan to another one. When rolled over, the lender will charge more fees, which just makes the borrower even more unable to pay, and rolling over again.
The cycle continues until the borrower is in a massive financial rut. What is even worse is that these lenders can sue you for the money that you owe as well.
Payday Loan Alternatives
If you’re in a tough spot, and need cash right now for whatever you are facing, there are other solutions and loan options available that should be explored first that usually result in much more favorable outcomes.
1. Get A Cosigner on A Personal Loan
If you have bad credit and do not qualify for a personal loan with your bank, consider reaching out to a trusted family member or friend to be a cosigner. If they say yes, then you should be able to have a higher probability of getting the money you need in a much more affordable and reasonable way. Additionally, a co-signed personal loan will help you build your credit if you make timely payments – so you can have a better foundation to do this on your own later on if need be.
2. Review Your Bills
If you need the money to cover bills for things like your rent, mortgage, or utilities, simply calling the company you owe money to can do the trick. Many companies have payment plans available, and can lower your payments each month, or even provide you with a grace period so you can get back on your feet. There is no guarantee, but you will never know unless you call.
3. Get A Paycheck Advance From Your Employer
Depending on your employer, you may be able to get an advance on your paycheck. This is a no-interest way of borrowing money you will eventually earn back. You are basically getting a pay period of income before you actually worked it, and then just paying it back later in your next paycheck. Obviously, not all employers will do this for you, but it is worth finding out.
4. Ask A Friend or Family Member for Support
If all else fails, you can always reach out to someone you know and trust if they could help you during your hard time. Though it may not be something you want to do, it is worth chatting about and coming up with a mutually agreed-upon amount and payment plan if you truly have no other path to go.
Many people fall on hard times, but it’s important to dig into the details of the loan you are signing up for. A payday loan is easy to get started with, but is significantly more difficult to get out of.