All you need is a little cash to hold you over until you get your next paycheck. Maybe you’ve had an unexpected expense, like a dentist bill or a car problem, and you simply don’t have the cash you need to get through the month. The strip mall on the corner advertises “payday loans” in flashing neon. That sounds like a good idea, right?
Payday loans are short-term, unsecured loans that are meant to be repaid at the borrower’s next payday. The lender usually verifies the borrower’s identity, and requires a bank statement or pay stub to confirm employment and income. The borrower then writes a postdated check for the full amount of the loan, plus loan fees, and when the loan is due, the borrower either pays in person or the lender cashes the check. That sounds like a simple enough solution to your short term cash flow problem, but anything that sounds too good to be true probably is.
Payday Loan Problems
The problem with payday loans begins to unfold when the loan comes due but you can’t pay the full amount back. If your bank account doesn’t have the required funds and the check bounces, not only will you incur additional fees from the payday lender, but you’ll face a bounced check fee from your bank as well. Many who face this scenario simply ‘roll over’ the debt, and take out another payday loan, incurring yet another fee. This cycle can repeat itself again and again, and sometimes cascades into a mountain of debt.
Payday Loan Interest
Interest rates can be exorbitant with these loans. One lender charges $17.50 per $100 borrowed. That makes the effective annual percentage rate a truly shocking 640% on a ten day loan. And if you took out a 14 day $300 loan and couldn’t repay it for two months, you’d end up paying $210 in payday loan fees. Even a small loan can end up taking months, even years to pay off, and cost thousands of dollars.
Payday loans are certainly not a bargain. One simple solution to a short term cash flow problem is to take out a collateral loan from Diamond Estate Jewelry Buyers. We have helped thousands of clients by providing them with personal loans secured with luxury collateral such as high-brand watches or diamond jewelry. But there are other ways to manage a short term cash flow problem, and we’ll detail a few of them in this article, as well as some ways to avoid the problem altogether.
Payment Plans with Creditors to Avoid Payday Loans
Perhaps the best alternative to taking out a payday loan is to deal with your creditors directly. If you know you won’t be able to make a payment, call your creditor before the due date to let them know in advance of your situation. They may extend your due date without charging a late fee or reporting you to the credit bureau.
Many creditors will negotiate partial payments if you have a reasonable and consistent payment plan in place. Your creditors ultimately want you to pay your debt, and if you are only incurring more debt by taking out payday loans, they are less likely to see their debt paid in full. Working out a payment plan can reduce your debt, your interest rate, and may allow you to pay off your bills over a longer period of time.
Payment programs with credit card companies can be difficult to negotiate, and can affect both your credit score and your taxes. So be sure to get all the terms of any settlement in writing, and make sure you understand the tax implications. Any debt that is relieved is considered by the IRS as income, and as such is taxable.
Advances from Employers to Avoid Payday Loans
Some employers will grant cash advances to their employees. These advances are not loans, but true advances, and as such have no interest rate or credit implications. Check with your human resources representative to see if your company has a policy for extending advances, and then make an appointment with your boss to discuss your situation in private. Be sure to state your case succinctly, and plan ahead for the fact that your next paycheck will be short the amount of the advance unless you have set up a longer repayment plan. You will want to be sure this is a ‘one time only’ request.
Credit Union Loans to Avoid Payday Loans
Credit unions provide many of the same services banks offer, but are member owned, non-profit entities. Because of this, credit unions are more likely to take a personal approach to lending, rather than simply running your credit score through an automated system. And many credit unions offer small, short-term loans to their members. Loans of this type can easily function as an alternative to a payday loan, with interest rates as much as 30 times cheaper than a typical payday loan.
Some credit unions have begun programs specifically designed to help people who might otherwise resort to taking out a payday loan. For example, North Carolina’s State Employees’ Credit Union has a program which offers no-fee loans with a 12 percent interest rate. Members can borrow up to $500 per month, to be repaid monthly with funds from their next paycheck.
Cash Advances on Credit Cards to Avoid Payday Loans
While cash advances on a credit card might seem like a bad idea, they can be better than falling prey to the harsh terms of a payday loan. Even though cash advances on credit cards can feature interest rates as high as 30 percent, they are still much cheaper than a payday loan. Some credit card companies specialize in providing credit to customers with poor credit histories. Be sure to shop around and find a card with the lowest annual percentage rate.
Borrowing from Friends or Family to Avoid Payday Loans
Borrowing money from a friend or family member is always a tricky proposition. Even when all parties agree to the arrangement, there’s always the possibility that the relationship will suffer if you’re not able to pay back the loan in a timely fashion. If you do decide to borrow from friends or family, consider writing up an agreement detailing the terms of the loan, including the date you intend to pay back the loan. You should be as serious about paying back your friends and family as you would be paying back any bank or business lender.
To learn more about Diamond Estate Jewelry Buyers’ short-term personal loans secured with your fine jewelry or timepiece, please contact us for a free loan consultation and verbal appraisal of your precious gift asset.
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Having you been thinking about going back to college or entering a technical school to increase your job prospects? If so, please see our article: How to Pay for Going Back to School.