Alternatives To Payday Loans

There are times when we encounter financial emergencies that we can’t avoid. Your company closes down and you are in dire need of cash, a family member needs to be confined in the hospital for a long period of time and the bills are mounting.

When these unexpected situations happen, having a huge savings account can usually solve this problem. What if it is still not enough? Most of us don’t get to save either. We are all familiar with the advice of financial experts to at least save 6 months to a year’s much-neededworth of your monthly expenses. Great advice, but the problem lies with the application. We only realize the wisdom of such recommendations when we are already in a tight fix and all we could do is wish we had followed the advice when we first heard it.   

Getting a payday loan is one of the ways where we can avail of much needed cash quickly. Cash financing is something that should be considered as a last resort for some experts due to the high-interest rates that these lending companies charge.

Payday loans are not legal in all states, they are now being regulated with each state having different standards on the amount, rates and lending period.

A lot of people are enticed by the easy approval due to the minimum requirements. A valid ID and proof of income are usually all that you need in order to get approval for your payday loan.

Once you get approved, a check will be given to you for the loan amount and finance charges which is post-dated to the paying period that you agreed upon. These charges are how payday lenders make money and they are quite high even when we compare them with credit cards who already have high-interest rates. Service charges are now at an average of $15 per $100 loan amount.

In making a payday loan, you should deal with direct lenders. There are companies or individuals who only act as brokers who charge higher fees and are less secure. There are no credit checks involved so you can’t expect to build your credit scores even when you pay off your loan. Bad scores can result from failure to pay, lending companies will send your unpaid loan to a collection agency which will reflect in your credit report resulting in a bad score.

If you sign a post-dated check for payment to your lender, you should be wary of overdraft charges. To avoid this, you should negotiate with your lender for an extension, if ever you can’t pay your loan on time.   

Some Payday Loan Alternatives

It is great to know that payday loans are not the only way for you to avail of emergency funds when needed. Due to the high-interest rates and charges these payday loans pass on to customers, it is a good practice to explore other options.

There are credit unions that can offer lower rates compared to payday lending companies. They also have a more lenient approval process compared to most banks out there. For your cash financing needs, this is an alternative that is worth looking into.

You can apply for a personal loan from a bank with a cosigner. You may have a friend or a family member who is willing to vouch and cosign on your behalf. This will give you access to better terms and rates. You can also apply for a higher amount with this loan compared to payday loans. With payday, loan amounts are lower than your income because it is based on your monthly paycheck. Payment terms for personal loans can also be longer, which gives you more time to manage your finances. You just have to make sure that you pay off your loan because your cosigner will be responsible for your debt as well. This can possibly ruin your relationship and his/her credit standing.

Pay loan companies have higher interest rates compared to credit card companies. It might be better to avail of a cash advance from your credit card, just pay it back at once to avoid further charges and higher interest rates.

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