Payday loans have been used by many people as a way to try to meet some bills during a short-term gap before the next paycheck comes in. This can be done when there are a few days between when bills are due before the next paycheck come in. These loans are just that: a single lump sum of money that is specifically borrowed from a payday lender. Hence the name payday loans. These are meant to be very short term loans that are paid back ideally within a week or month.
These have been pitched as a short-term solution for individuals with poor credit who need money quickly, but what’s the truth behind these loans? Are they a good option or are they an expensive, over-priced trap? Unfortunately most agree it’s the latter, and there are good reasons to avoid payday loans and look for the alternatives.
Why You Should Avoid Payday Loans
First and foremost, payday loans can be very expensive. Some would say mob boss breaking the knees levels of expensive. In fact, interest on payday loans can be as ridiculous as 500% depending on where you are and who you use. This leads to the overwhelming majority of payday loan borrowers ending up in a vicious cycle.
The extra costs of a payday loan result in there being less money for the next month, which leads to a shortage and the need for yet another payday loan. This cycle means the individual needs to keep borrowing to pay off the previous loan and the hole just keeps getting deeper.
The insane interest rates on these loans make it inevitable for many borrowers that they will end up owing or paying many times what the original loan was for. These are not good loans since they bury you in debt.
Don’t Forget the Fees
While the insane interest rates are a major part of the reason why you should steer clear of payday loans there are the payment fees. There are fees for being late with a payment. There are fees for missing payments. There can be fees for having too many fees stack up. There are all kinds of fees and the extremely high interest rates apply to those, too.
Payday Loan Alternatives
At this point it should be obvious that payday loans are not a great idea. So what should people with bad credit look for as an alternative? There are a few options. These aren’t necessarily great but they’re still better than going with a payday loan.
Bad credit loans are available from many lenders who are willing to look at borrowers with bad credit. These tend to be more expensive than conventional loans but are a steal compared to payday loans. Cobra loans are available to individuals with bad credit but a steady income.
Cash advances from credit cards have a high interest rate but are well under what payday loans go for. This can be a better option that still lets you pay the bills with much less penalties.
Guarantor loans are harder to get because a borrower needs someone to act as a guarantor on the loans meaning they pay it if you don’t. But they are an option if that is a possibility.
Money transfers, personal loans, and even borrowing from current accounts with authorized overdraft coverage are all other options that are better than going with a payday loan. These are always worth pursuing as an option first.