If you’re strapped for cash and need cash quickly to make it until your next paycheck comes in it’s possible you’re thinking of getting payday loans. But payday loans can be a risky kind of credit, and you may end up paying more than what you borrowed initially.
This is why you should be aware of the disadvantages of payday loans, as well as the alternatives are available to you when you’re in a pinch.
Are payday loan loans a type of credit?
The term “payday loan” refers to a temporary and high-cost loan. They’re typically offered for modest amounts, like $500 or less and are intended to keep you over until the next payday.
The process of paying for payday loans differs from conventional loans. Instead of making monthly installments as you would with installment loans the payday loans are generally payable in one large lump sum after you have your next pay check. The terms of payday loans are usually quite brief; typically, they’re just 2 to 4 weeks long.
Why are payday loans so bad?
If you’re in need of cash immediately A payday loan might appear appealing. You’ll receive the money you require to pay for the cost of repair to your car or for food, and then repay it when your next payday comes around. What’s the issue?
Payday loans are more complex than you might believe. Avoid them due to these reasons
- Payday loans come with astronomical percentages of. According to the Consumer Financial Protection Bureau, the fees charged on payday loans amount to 400% of the APR. It means you’ll need pay back much more than the amount you initially borrowed and it will be difficult to repay the loan.
- These loans typically come with high charges. In addition to the high rate of interest Payday loans can be costly with fees for late payments, insufficient funds charges, or other hidden charges that could dramatically raise the amount you are owed.
-
- You must grant the lender access to their electronic accounts. If you apply for a payday loan the lender will ask you to complete the ACH Authorization Form. This permits the lender to pay the loan directly from your account on the specified date regardless of your ability to pay. If you do not have enough cash in your bank account at the time you want to withdrawal, you’ll be slapped with overdraft fees, too.
- Loans for payday can trigger the spiral of credit. Many people are not able to pay their payday loans by the originally scheduled due date. Instead they roll in or renew their loan, and pay fees for the extension of due dates. As time passes, you may end up owing more than the amount you initially borrowed which makes it difficult to exit the cycle of payday loans.
Other alternatives
Now that you understand why payday loans can be risky, you should go through all the options so that you don’t have to take these loans. If you’re in need of money urgently take a look at these alternatives:
1. Ask your friends or family members for advice
It might be embarrassing to seek help, however, asking your friends or relatives for a modest loan is a superior option to relying on an expensive payday loan.
If it helps the person feel happier, you should sit together with your family and friends and devise an elaborate payment plan. Choose a date for your repayment and repay the loan using interest.
2. Ask for a payment plan
Certain creditors, such as utilities or doctor’s offices can permit you to establish an installment plan in the event that you’re unable to afford the entire balance. You might be able to spread your payment over a few weeks or even months or you could be eligible for an extension of the due date.
Call the customer service phone and discuss your circumstances, including when you’ll be in a position to pay the total amount.
3. Speak to your employer about an advance on your paycheck
In certain situations you might be able to get the benefit of an increase on your salary.
There’s not any interest to be repaid when you receive a pay advance. it’s just a matter of getting access to your normal pay in advance of your scheduled. Speak to the human resources department of your company or the payroll department in order to determine whether this is an option.
4. Make use of a credit card
If you’re a credit-worthy person it is possible to utilize a credit card with low interest to pay for important expenses until your payment day. Be sure to verify the interest rate of the card. Some credit cards are characterized by high APRs and you’ll have to pay more than using a different option, such as personal loans.
5. Take a look at a personal loan
If you have excellent to good credit and a steady income, the best alternative is to get an individual loan.
Personal loan lenders provide attractive interest rates that are lower than the rates you’d find with payday loans or credit cards. You may be able to spread the terms of repayment over many years to get lower monthly payments that you’re more sure you’ll repay.
Your next move
Some personal loan companies like Citizens Bank, permit you application online just five minutes. In addition, the firm offers fast approvals so that you are able to handle any emergency that may arise confidently.