Payday loans can be expensive with interest rates well over 100%. It is not uncommon for payday loans to have 400% interest rates.
Payday loans are very profitable for the lender and harmful for consumers. So it is no surprise that you see them everywhere. Despite efforts from the government and several consumer advocate groups to curb them, payday lenders are thriving.
Paying back payday loans can be financially damaging for borrowers. Many of them get stuck in a repeat cycle where they take a payday loan to pay off the old payday loan. It can be a vicious cycle as the debt grows bigger and bigger.
Alternatives to Payday Loans
Personal Loans
Personal loans have relatively lower interest. The interest rate can vary between 8% to 35% based on your credit. 35% is not a good interest rate but is much better compared to 400%.
A loan-aggregator like Fiona can give you interest rates from multiple providers in a few minutes. Just fill out a few basic details to get started.
In recent years, peer to peer lending has been a popular source of funds for people strapped for cash. You will be borrowing money not from a traditional bank but from a pool of investors.
Well-known peer to peer lending apps include Prosper, Lending Club, Peerform, Upstart, and Kiva.
Get an advance on your paycheck
Another alternative to expensive payday loans is getting an advance on your paycheck. It is a way of getting early access to your earnings from your job.
One of the companies that offer an advance on your paycheck is Earnin. Earnin gives you an advance and you payback via a deduction from your next paycheck. There is no fee involved. Earnin lets you tip what is fair.
Negotiate a payment plan
If you are having difficulty making your utility or credit card payment, call them to see if you can work out a payment plan. Many companies will be willing to give you more time to make payments.
Ask for help from family and friends
You can ask family and friends for help if you need money quickly. Remember to pay them back quickly because otherwise, you will damage the relationship.
Credit card
Credit cards have high-interest rates though not as high as payday lenders. Many credit cards allow you to take cash advances. Usually, the rates for cash advances are higher than they are for regular purchases.
Credit Counseling
If you are having financial difficulties, consider getting credit counseling. A good credit counseling service can analyze your debt and negotiate lower interest rates and payments. Take time to vet the companies as there are many companies that will prey on consumers who are struggling financially.
Bottom Line
Payday loans are notorious for their high fees and interest rates. But you have other options when you need money quickly. Consider getting a personal loan or an advance on your paycheck. You can also tap into your friends or use a credit card. Staying away from payday loans will not only save you money but will help you get back on feet quicker financially.
