Payday loans are an ingrained part of the financial landscape in the United States. About 12 million people use this type of loan every year according to the St. Louis Fed. They’re particularly prevalent among those who don’t have a traditional bank account. It’s important to know one thing above all else when it comes to payday loans: They carry outrageous interest rates. Due to this it’s wise to look into these five alternatives to an expensive payday loan.
Dip into Your Savings
In a time of need, your first reaction might be to look to external sources for help. Payday loans offer consumers the promise of quick money. This can be very tempting for those who need cash right now, and believe they’ll be able to pay it back at their next paycheck.
Payday loans, however, can be nefarious for borrowers because they tend to carry some of the highest interest rates of any kind of debt—often as high as 400 percent on an annualized basis. Even over a period as short as two weeks, this can add up to a substantial amount of interest. Dipping into savings (if you have them) can be a better alternative than getting a payday loan. While it can be disheartening to lose that safety net, you might lose it anyway if you get stuck with a payday loan.
Negotiate with Your Lender
It never hurts to ask about something. Oftentimes, the answer will surprise you. This is particularly true when it comes to negotiating with your lenders.
Don’t assume debtors will be unwilling to reach new terms or give you some leeway if you’re going through a tough patch. If you have a solid history with the lender, this can be a huge benefit to making your case. The lender obviously wants to get all the money they’re owed from the original debt. However, they’re often willing to work with borrowers if it means they can still collect most of what they’re owed.
Consolidate Your Debt
If negotiating on your own hasn’t worked out, it’s time to look for some assistance. For consumers in this position, debt consolidation might be the next logical step. Essentially, this means rolling up multiple debts into one. This tends to simplify things for borrowers, who then only need to make one payment as opposed to many. It also tends to lower the overall interest rate of the previous combined debts, which makes repayment less of a financial burden.
There are many debt relief companies out there; but not all of them stand on equal footing. People looking for debt consolidation with bad credit should ensure the quality of a debt relief agency before signing up for anything.
Use a Type of Debt That Carries a Lower Interest Rate
There are many types of personal loans out there. While payday loans are generally some of the quickest and easiest to get, that doesn’t mean they’re the best. In fact, the relative level of ease required to get a payday loan should be a major red flag for anyone applying for one.
Getting a loan with bad credit can be tough. However, even people with poor credit can often find a better type of debt than a payday loan. Credit cards, for instance, while not typically a good kind of debt, are still vastly better than payday loans. The typical APR for a credit card is going to be somewhere between 15 and 25 percent, based on the credit history of the borrower. That’s several orders of magnitude lower than the 400 percent interest rate you’ll get with a payday loan.
Get Help from Family or Friends
It’s tough to recommend borrowing money from family and friends, because everyone’s situation is so different in this regard. Maybe this is the first place you should go; and maybe it’s the last. If you have a good relationship with your family or friends, and you genuinely expect to be able to repay them, they’re likely going to give you a better deal than an institutional lender.
There are, however, several notable drawbacks to borrowing from people close to you. If something happens that makes it so you can’t pay them back, it can have major ramifications in terms of damaging your relationship. Furthermore, you might be taking money that they really need for themselves, which could end up putting both of you in a tough position.
Payday loans are notorious for being one of the worst forms of debt in existence. It really can’t be overstated that you should exercise just about every other option before you go for a payday loan. Investigating these alternatives might save you a lot of financial hardship.