There are times when you need cash fast, so going through a regular process of taking out a loan won’t work. Payday loans were originally developed to help people out of situations like this. Their very name indicates that it’s supposed to be a short-term solution, literally until your ‘pay day’. However, this type of financing is extremely tricky and potentially dangerous to use. Therefore, if possible, you should go for alternatives with more reasonable rates and terms.
Why You Shouldn’t Use Payday Loans
The main reason for never touching a payday loan is its extremely high interest rates. These rates make taking out the loan pointless long-term as you’ll have to pay off a much greater amount of money. Even if you only take the loan for a few days, you’ll be literally giving the lender a chunk of your hard-earned money for free.
There’s also a problem of payday lenders often being dishonest and unreliable. Check out this Better Business Bureau press release on the subject of payday loan scams to get some idea of what you might face.
Even respectable payday lenders might hide some extra fees in the fine print of their contracts. Be sure to read the terms very carefully and find out what kind of fees you’ll have to pay if you pay out the loan before the due date and the fees for breaking it.
Another reason not to take out payday loans is that they can affect your credit rating in a bad way. If you don’t pay back the loan on time, your rating will go down by default. However, other lenders, are often hesitant in giving loans to people who use the payday services often, even if they pay off their debts on time.
Alternatives to Payday Loans
- Auto title loans.
A car title loan allows you to get financing that equals the amount of your vehicle’s value. Note that these services are available not only for cars, but also boats, RVs, etc. If you have a car and are confident in your ability to pay off the loan fast, this deal will be best. Good lenders will give you money as fast as any payday loan, but the interest rates won’t be as exorbitant. As they use a security of the asset, they usually offer the same terms that banks and traditional lenders would. Also, the best lenders allow you to keep the car and use it. Therefore, you get your money ‘for free’, much like you would with a payday loan.
- Emergency assistance.
If you need money fast to deal with some emergency, you can apply to the government, church, or your community for help. You can also seek credit with the local church or community council.
- Credit cards.
A credit card works much like a payday loan does, but it’s designed to be long-term, so it has lower rates overall. Note that they would often be higher than those offered by a traditional loan. You can also get a secured credit card and get a cash advance from it.
Payday loans may seem like a good way to get money fast, but they are far too risky. So, whenever you have the chance, you should use more reliable financing alternatives.
Published by Emily Rose