Payday loans are a quick and simple way to get cash when you’re in financial trouble. Paying rent or securing cash in case of an emergency, paying late on your credit card payments, etc. While we’ll discuss why payday loans should not be your last resort, let’s first talk about their appeal.
The advantages of payday loans
Get money quickly.
The online and in-person applications are simple, easy to fill out, and require very little information. Usually, approval is within minutes and cash can be received the next day. Sometimes you may even be able to get funds @ GreenDay in under an hour.
It is easy to get a loan.
No appointment necessary. There is no need to meet with your bank’s loan officer, or give detailed information that might require personal research. You can apply online for a payday loan and the forms are simple. Contrary to traditional loans which can dictate how your money is spent (e.g. Payday loans are not required to buy a home or a car loan. Instead, they can be used to pay bills, repair costs, and credit card payments.
There are very few requirements.
Contrary to traditional loans, you do not need to have collateral like a house or have perfect credit. A steady income and a checking account are required to get a cash advance or payday loan. You must also prove that you are at least 18 years old and a resident of your state.
These factors make payday loans an attractive option for those who need cash fast and easily. However, they can lead to a vicious cycle of debt that makes them the least preferred form of borrowing.
You will usually write the lender a check detailing the amount of the payday loan you want. Or you grant them permission to take the amount out of your bank account at the due date. Your account will automatically be debited of the loan amount when that day arrives. If you don’t have enough funds, there are a few things that will happen.
- A Non-Sufficient funds (NSF), which is usually between $38 and $45, will be charged by your bank.
- NSF fees are charged each time you attempt to pay a bill or write a check from your account.
- Payday lenders will charge you an additional fee and interest. This can range from 300 to 450%.
The cost of your seemingly easy loan has risen to five times the amount you borrowed. You still need to repay it all. You will have to pay more to your lender for extensions, more interest, and more NSF fees. This is because your loan agreement gave permission to your payday lender to withdraw your funds.
The so-called benefits are not worth the effort when you realize how small loans can quickly spiral out of control.
Alternatives to Payday Loans
You can consider other options:
- Talk to a bank/credit union. This process is not as fast as a cash advance loan. However, it has fewer fees and time frames.
- Ask your employer for an advance. Ask your HR department or the business owner for an advance. This is not a loan and there is no interest.
- Look into Emergency Assistance. Low Income Home Energy Assistance Program (LIHEAP), a federally funded program, assists families with managing their energy bills, energy crises, minor home repairs, and other costs.
- Borrow money from family and friends. Although asking for money from people you love can be awkward and difficult, the discomfort far exceeds the dangers of accumulating debt.
- Sell your items on Craigslist or eBay. Go to a Pawn Shop. You can sell anything of value including toys, clothes, furniture and tools.
- Don’t hesitate to sell your car. Public transportation and carpooling are options.
- Find a roommate. Splitting rent and utilities can help you save.
- You can get a cash advance with your credit card. Although a credit card cash loan isn’t the best option due to the high-interest rates it has, it’s still cheaper than a payday loan.
- Talk to your creditors about payment plans. Call them to see if they can help you set up monthly payments you can afford.
- Consider a Life Insurance Loan. If you have cash value, some policies allow for loans.
- Take credit counseling. Talking to experts who can help with budgeting will allow you to take control of your finances.