Faced with an unexpected expense or drop in income, many people turn to predatory loans in an effort to bring in cash quick. However, the ease with which the money can be borrowed comes at a high price.
Predatory loans are plagued by hefty fees and a repayment period that most people can’t meet, creating a never-ending cycle of debt. According to the Center for Responsible Lending, the average two-week payday loan has an annual interest rate between 391-521%, and the average borrower will stay in this cycle of payday loan debt for 212 days out of the year.
Instead of falling for a flashy storefront and easy cash, you may want to look into these alternatives to predatory personal loans.
Get a personal loan from a credit union or other financial institution.
Instead of falling victim to astronomical interest rates and short turnaround, consider looking into getting a small loan from a credit union or other financial institution.
Responsible small loans will allow you to repay the loan in installments (i.e. monthly payments) instead of in one large lump sum, and they have a longer repayment period – at least 90 days instead of a short two weeks. In addition, the amount you are given is based on your credit history and current financial picture, which means you won’t be approved for an amount you couldn’t pay back in the time allotted.
These days, you can obtain a personal loan entirely online. The days of making appointments with your banker are long over. Debt consolidation loans are available through many online lenders and you can get the funding you need as soon as the next day. While these may carry a slightly higher interest rate (depending on your credit profile), the fact that it’s an installment loan will ensure that you won’t be paying back your loan for 20+ years.
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Fees for these loans are based on missing monthly payments, instead of biweekly charges of payday loans that push you further into debt. In fact, instead of perpetuating the cycle, some credit unions offer additional help in the form of free credit counseling to their members.
Use a cash advance from your credit card.
While credit card cash advances also have fees and high interest rates, they are minimal in comparison to payday loans.
According to a survey conducted by CreditCards.com, the interest rate on credit card cash advances vary from 9% – 36%, and are, on average, 6% higher than cardholders would normally pay on a purchase. It’s also important to note that, if you’re accustomed to paying off your credit card balance in full and not being charged interest, cash advances don’t work that way – interest begins accruing from day one.
So when does a credit card cash advance actually make sense? If you’re faced with a necessary purchase in which using credit isn’t an option. Again, it’s a better option than a payday loan, but it doesn’t come without strings attached.
Sell items in your home.
Another viable option if you need cash quick, is to gather up items in your home that you can sell — either in a garage sale, through a site like craigslist or ebay, or at a pawnshop.
If you don’t want to part with the items that have the greatest value, or if you need the cash quicker than it takes to find a buyer, pawnshops offer loans in which you can receive a portion of the retail value of the item and they will hold it for a designated about of time. If you haven’t repaid the loan once that time is up, they will sell it at a marked up price.
The best part about pawnshop loans is failure to repay doesn’t impact your credit, it simply results in the loss of your item. Beware, however, that repaying the loan does include paying interest and fees established by the pawnshop.
Seek help from aid societies.
If you are struggling to meet the basic needs of you or your family, there are organizations that are willing and able to help.
Many states offer temporary cash assistance to low-income individuals who are able to show a significant need. This includes pregnant women, families with small children, and immigrant families. Assistance is offered in the hopes that it will bridge the gap between poverty and self-sufficiency. Check with your state to see if this is something they offer and how to qualify.
In addition, military families can receive loans or grants through their branch of service. For instance, the Air Force Aid Society will cover a variety of expenses – medical, dental, child care, moving, basic living – in cases that are deemed a financial emergency. Active duty, retired and reserve members, as well as their spouses and dependents, are all able to qualify.
Before you jump on the dead-end cycle of debt offered by payday loans, research your options. Even in the most dire of situations, there are alternative paths to take.