When consumers with poor credit and little savings need cash in a hurry, payday loans can seem like the best choice out of limited options. But payday loans come with a slew of risks and disadvantages, the most egregious being sky-high interest rates and lack of transparency about fees.
Whether you use payday loans on a regular basis or only once in a while, you should be aware of the industry's most troubling statistics, and then consider your other options:. When you're worried about paying a bill on time or facing a costly medical emergency, payday loans aren't your only source of immediate funds. Less risky options exist, even for borrowers with poor or no credit. Don't wait until you're drowning in fees to check out these safer alternatives to payday loans.
In fact, the FDIC initiated the Small-Dollar Loan Pilot Program in expressly to increase the availability of fair, affordable alternatives to overdraft protection fees and pricier loans offered by payday lenders. Credit unions have also jumped on the small-loan bandwagon.
Successful repayment of an STS loan can improve the borrower's credit and help him or her access loans with lower interest rates in the future.
Cash advance from employer Asking your supervisor for an advance on your next paycheck can be awkward, but don't let that deter you if you're really in a bind. You'll be avoiding exorbitant interest rates, and since this type of request is a one-time deal, there's no opportunity for the advance to snowball into a larger amount of debt. Some HR departments even offer preprinted forms for requesting payment advances. You're the best judge of whether your employer could frown on this request, but meeting with your boss to calmly explain why you need an advance, just this once, is likely to get an understanding response.
Secured credit card Applying for a secured credit card can be an excellent option for individuals with poor or no credit. Once the deposit is paid, a secured card can be used just like any other for emergency purchases, monthly bills, and everyday expenditures. There are as many predatory options out there as there are safe, reliable ones, so be sure to shop around for a card that comes with a low interest rate and minimal annual fee.
Secured credit cards also provide another benefit -- they're a great first step toward rebuilding poor credit. Military aid societies If you or someone in your family has served in the military, special financial aid may be available to you.
These programs are designed to assist with essential expenses, such as groceries, rent, and medical bills. What if I'm already trapped in the payday loan cycle? If you're struggling to pay back an outstanding amount to a payday lender, avoid rolling over your balance into yet another loan at all costs. Next, get in touch with a credit counselor who can best advise which of these options is best for you and can help you create a plan for managing your debt.
Be cautious when choosing a credit counselor; find out through your local attorney general and consumer protection agency whether users have ever filed complaints against the counseling service, and avoid agencies that require significant payment up front.
Above all, make payday loans your last resort -- their convenience simply doesn't outweigh their hefty risks. The article Say No to Payday Loans: The Motley Fool has a disclosure policy. Subscribe to our other newsletters.
All index data provided on a 15 minute delay. Search The Web Search Aol. Say No to Payday Loans: Whether you use payday loans on a regular basis or only once in a while, you should be aware of the industry's most troubling statistics, and then consider your other options: Payday loans are illegal or prohibited by usury laws in 13 states.
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