Considering a payday loan? These alternatives will get you through a crisis
It’s no secret that we have a huge debt crisis in the United States. Americans owe lenders trillions of dollars, and that number is growing every day. People struggle to make ends meet with the funds they have before they even have to pay off their debts. And when the middle of the month arrives and they find themselves without cash, a simple solution is offered to them: the personal loan.
Payday loans are short-term loans given to you throughout the month until your next payday. The idea is that you repay them as soon as you get paid. However, they are often the catalyst for additional debt with crippling interest rates and are known as predatory lending.
For this reason, it is worth avoiding payday loans at almost any cost. Yes, they can provide temporary relief, but they are much more likely to land you in much worse trouble. It is important to know that there are alternatives.
The alternatives can be hard to digest, whether because they involve swallowing your pride or because they tire you out in some other way. However, they must absolutely be considered before resorting to a payday loan.
Non-profit organizations and charities
Before you conclude that you don’t need a charity and you won’t benefit from it, stop for a moment. The reality is that charities are in the best position to help those who are still somewhat creditworthy. When they give money to people without any other form of income, that money earns nothing. However, when you borrow money from a nonprofit or charity, you agree to repay it.
Different charities and nonprofits have different requirements when asking for help. They may ask to see your payslips and other personal information. Consider that when you get back on your feet, you will be motivated to help this charity. Turning to them for help gives you the best chance of helping yourself and helping them down the road.
You can take out a loan on your 401(k) if you have one from your employer. 401(k) loans are not the same as premature withdrawals from your 401(k). Instead, they work like any other loan, giving you money up front that you can repay over a term of up to five years.
401(k) loans are interest-bearing, although the rates are low. However, they do not impact your credit score and you do not need a good credit score to apply for them.
Loans to credit unions
If you are a credit union member in good standing, you can apply for a loan from the credit union. They will take your credit score into account, but place more weight on your relationship with the credit union. They can offer alternative payday loans, which have a maximum interest rate of 28%.
These credit union loans will always be expensive and can negatively impact your credit score. However, you will get better terms than you would from a payday lender.
Going to a family member or friend to apply for a loan is difficult. We all have a lot of self-esteem issues in our family and social circles. Admitting that you need help will force you to swallow your pride. You will also be extremely aware of the difficult position you could put them in.
However, it is a better way to go than payday loans and there are ways to do it that provide some relief. Write a contract rather than just asking them for a deposit into your account. Treat their loan as you would any other loan, committing to repay them according to specific guidelines.
By doing so, you are showing them that they are not just giving you money. This will put them at ease and also contribute to your pride. Don’t fall into the trap of promising more than you can guarantee, as this will only make things worse in the long run. Be as honest as possible and remember that the reason you might ask them is because they know you would do the same for them.
Pledging items is one of the oldest forms of short-term lending. When you go to a pawn shop, you are essentially taking out a loan with property as collateral. If you don’t repay the loan on time, they take possession of that property and sell it. Pawnshops are still a viable way to get some quick cash, and if you know you’ll be able to repay the owner, you’re not risking too much.
There are, of course, significant downsides, including the lack of regulation and the possibility that you could end up losing a valuable or sentimental asset.
There are other alternatives for getting quick cash that are better than payday loans. The main takeaway should be that payday loans are a terrible last resort. When you get a payday loan, you’ll probably end up having to get one of the alternatives above, only at a later date and in a much more difficult situation.
This article does not necessarily reflect the views of the editors or management of EconoTimes