It’s easy for people to understand why payday loans seem so tempting.
Consider this example. $300 is the difference between you and your important bill. Your next payday falls in 10 days. Your credit card balance is at the limit. You can’t borrow any money from your friends. What are you supposed to do?
It’s not easy because there aren’t many great options for these types of situations. If this is the case, you may be tempted by payday loans, which might help to bridge the gap but will likely push you further into debt.
There are other options available if you feel you cannot pay the loan amount. Understanding the mechanics of payday loans will allow you to make informed financial decisions.
Here’s how you can get payday loans.
A payday loan is secured with your paycheck. It doesn’t matter whether you have good credit or bad credit when you apply for a payday loans. The lender has the right to take your next paycheck from your bank account in order to pay it back. That is how payday lenders lower their risk.
How is this possible? If you are approved to get a payday loan, the lender will send you a postdated bank check which it can deposit on you next payday. Once your employer has paid you, you give the company permission to take funds from your account. Want to learn more about payday loans? visit and apply on acfa cash flow official website now.
What happens if you need to repay your loan?
Payday lenders often charge a fee for each $100 they lend. The Consumer Financial Protection Bureau states that fees may range between $10 and $30 depending on who you are and where your home is located.
These fees might not seem like a lot, however they can add-up. An average $15 fee for a twoweek loan can result in an APR almost 400%.
You are expected to pay the entire loan and fees on your next payday. A payday loan can often be paid back in one lump sum, unlike a personal loan. The loan can be transferred to a future payday if you don’t have sufficient funds. However, this will incur additional fees.
Imagine this scenario. You borrow $100 and owe $115 to the lender. When the loan is due two weeks later, you realize you cannot repay. So you pay $15 and roll over the loan. Now you owe $115 because you have not paid back any of the principal.
The fee might not seem significant when you first get the loan. But if you continue repeating the rollover cycles, you may end up owing much more than what you borrowed.
What causes payday loans to set off an alarming cycle?
It is easy to minimize payday loan fees when you need money urgently. It is normal to assume that your next payday will allow you to pay the principal and the fee.
Your paycheck will usually be sufficient to pay for additional expenses. Unexpected expenses could make it impossible to save enough money to repay the payday loans.
Perhaps your plan was to cut down on gas consumption in the next month to help pay the loan. Your plan could end up in ruins if gas prices go up. If you cannot repay the full amount of your loan, you will have to extend your loan.
“You can get into a vicious loop if your debt is not paid on time,” Katie Ross, education- and development manager at American Consumer Credit Counseling. “Then you’ll continue to be charged interest and fees for every late payment.”
Once you’re in this cycle, it can prove difficult to get out. Ross said that unless you have a plan in place to quickly repay your loan, it is likely to make things worse.
She stated that the bigger your paycheck, it’s more likely that you will be able to put aside money to repay your loan. But, if your salary is less than what you are borrowing or if you have multiple bills to pay, then you can see how the trouble begins.
What to do when you need cash before your next payday
“We are concerned about people not having money when they require it. Exodus Lending Executive Director Sara Nelson-Pallmeyer says banks are reluctant lend money to people they see as high risk. Exodus Lending helps people out of payday loan loops by lending money. “People often get payday loans because they don’t have the means to get a better loan.
It might not always be possible to obtain a traditional bank loan for your urgent cash needs. However, you might find that these other ways of stretching your financial resources to the next payday are more effective than a payday loans.
1. Credit cards can be used
You could charge your expenses with a credit card that isn’t exhausted. The interest rate on credit cards will be less than payday loans, and you’ll have 30 calendar days to repay it before interest starts accruing. A credit card might be a better option if you have the funds available to repay by your next payday.
2. Online application for personal loans
A personal loan can be obtained even if you have poor credit. LendingClub or Earnest have personal loans available for as little as $1,000 up to as much as $2,000. Avant requires a minimum credit score to 600. Their estimated APR is between 9.95% and 35.99%. This is significantly less than the 400% you’d face on a payday loans.
You can easily check your rates online. It won’t have any impact on your credit score. Once approved, money is sent within one day.
3. Consider joining a credit association if you have the chance
Payday alternatives loans (PALs), are available from credit unions. These loans allow you to borrow between $200 to $1,000 for a term up to six-months. The APR can be capped at 28.00%.
For PALs to be available, you need to have been a member for at minimum one month. These are not the best options if you urgently need cash.
4. Generate income quickly
There are several things that you can do to make quick income. Sell items you don’t use that you are unable to live without in order to make more money. Have clothes you don’t need anymore? These clothes can be sold online or at your local secondhand shop.
You can also rent out a space on Airbnb.
5. Ask your employer for an increase
You can ask your employer for an advance on your next paycheck. Ask your HR and payroll department to see if they can help.
6. For payments to be reduced or delayed, seek leniency
Calling creditors to ask for extensions on due dates is a good idea if you owe money.
Many companies will offer to be flexible or allow you partial payment of your bills. It is worth checking out areas where you may be able to lower or delay payments until you get to payday.
7. For a reduction in your expenses, use emergency relief services
You may be able to make a savings on any future payment by eliminating other costs in your budget and using emergency aid services within your community. Here are some examples:
- Local food banks – Reduce or eliminate your grocery budget by taking advantage of the resources available at a local food bank, while you wait for your next pay check.
- The federal government administers the Low Income Home Energy Assistance Program (LIHEAP). This program is designed to help low-income families meet their energy demands. LIHEAP offers annual grants but cannot provide emergency cash. Applications must be made by September. But, it could be used to plan the future.
- Local community agency: Many communities have nonprofit agencies that assist residents in times when they are most needed. Community Services Agency in Mountain Park (California) offers assistance with rent and utilities as well as back-toschool expenses. Similar services may be offered by churches and other religious organizations.
8. What about pawn loans
One of your valuable items could be used as security to borrow money from a Pawnshop. The pawnbroker will typically hold the item and loan you money. This amount is often a percentage of the item’s value.
You’ll be able redeem your item if the loan is paid in full. If you stop paying, the pawnbroker may eventually sell your item in order to recover its loss.
A pawn is not a cheap way to borrow money. Averaged over 12 months, you will get an APR around 200%. That’s about half the cost for a payday loan.
Because pawnbrokers do not report payment history to consumer credit agency, your credit score won’t be affected if your loan is not paid off. However, the pawned item will be forfeited.
The term for a Pawn Loan is 30 Days. This gives you enough time to get the money together and pay it back.
However, it’s easy for a pawn borrower to become indebted. Therefore, it’s better not to go into debt again.
How to find other quick-cash alternatives?
Here are a few methods to determine which method works best for you if cash is urgently needed.
- Which loan will have the highest interest? It might be easier to repay a loan with lower interest. It is possible to negotiate terms with friends and family that offer lower interest rates. Take a look at these helpful guidelines if you are concerned about borrowing money with people you know.
- Is it possible to build credit? If you don’t have the credit to repay the loan, it is best to build it first. But, if that is not possible, a loan from another institution that can help you build your credit (such as a credit union’s payday alternative loan) could be a great option to get the money you need and boost your credit rating.
- Can you repay your loan while adhering to its terms? No matter who your lender is, you may be in for serious trouble if the plan you have to repay the loan and meet its terms doesn’t work. The first step in deciding which loan is right is to find one that you can afford.
Rely on family and friends
Family and friends might not always have the ability to lend money but they may be able help with other expenses. They might be able to let you do laundry at their home. This can reduce the cost of your laundromat bill. You could have them cook dinner and make leftovers for you that will last till payday. Perhaps they can lend money to you.
Do not be afraid, even if it is difficult to speak up about financial issues with those closest to you. It takes a village. And one day, you’ll also be there for them.