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Alternatives to Payday Loans |
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Payday loans are very expensive, as you need to pay huge interest rates on them. When you get a payday loan, you are borrowing money against your next paycheck. And if you can't pay the loan back, you might be in danger. No doubt, with payday loans you can get quick cash. But be very careful regarding repayment. If you take a payday loan, repay it within the stipulated two-week time period. Otherwise, you would end up paying more interests for getting no new money. So, how can payday loans be convenient, and at what price? Lenders of payday loans often claim that their interest rates are lower than paying for bounced check fees. But if you notice the fine print, you would find that payday loans lenders charge twice from consumers as compared to the bounced check fees. In the country, there are several payday loan agencies that charge up to 500% on interests annually. That's why it's a good idea to avoid such agencies. The best alternative to payday loans for consumers is to deal directly with their debt. Most of the creditors would accept partial payments if one sets up a payment plan. Consumers can negotiate such plans themselves or contact the local nonprofit Consumer Credit Counseling Services (CCCS) office for help. Paying off debts through a payment plan, rather than taking on even more debt at exorbitant interest rates, is the best way to deal with financial problems. CCCS offices also teach money management skills to help consumers prevent financial problems in the first place. Another alternative to payday loans is to get credit cards. If you search a bit in your city, you would find hundreds of credit card companies that deal with consumers with financial obligations or poor credit history. Even if you suffer from bad credit, these companies issue you secured credit cards. Instead of approaching payday loans agencies, you can go for credit unions. Credit unions offer small, short-term loans to their members. Today, many more consumers are also joining credit unions as they made the affiliation requirements less strict then ever. If you shop around and spend some time in the financial market, you definitely find a credit union that comes bang on your target (needs and requirements). For example, North Carolina State Employees' Credit Union offers members a salary advance loan at an 11.75% annual interest rate, or 30 times cheaper than typical payday loans. Some credit unions are also offering free financial counseling and a savings plan to help members get back on their feet. There are even some credit unions that are making available longer payback periods and installment payments. While traditional overdraft protection may be a good alternative to payday loans, fee-based bounce protection programs usually are not. Traditional overdraft protection plans differ from fee-based overdraft loans, often called bounce protection. In these programs, checks don't bounce and money isn't borrowed from other accounts. Instead, the bank makes a loan to cover the check. Bounce protection programs charge fees--$3 to $10 per day and/or $20 to $35 per transaction--in exchange for covering account overdrafts up to a set dollar limit (usually $100-$500). If a loan is unavoidable, shop around. Although payday loans may be the only option for certain borrowers with poor credit, you may be able to find a bank or financial institute that would approve a small loan with a reasonable interest rate. Compare both the APR and the dollar amount of the finance charge. Moreover, consider getting overdraft protection on your bank account. You would avoid returned check fees and have a cushion in financial emergencies. To sum up, payday loans cost at least ten times more than a small loan from a traditional bank. And if you are unable to repay the loan and the fee on the due date, you may get trapped in an endless cycle of debt: you would never be able to pay off the loan, but you would be repaying the loan fee over and over. |
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