Considering A Payday Loan? These Alternatives Will Get You Through A Crisis

It is no secret that we have a massive debt crisis in the US. Americans owe trillions of dollars to lenders, and the number is increasing every day. People are struggling to make ends meet with the funds they have even before they have to pay instalments on their debts. And when the middle of the month comes and they find themselves with no cash on hand, an easy solution is offered: payday loans.

Payday loans are short-term loans that are given to get you through the month until your next payday. The idea is that you pay them back as soon as you get paid. However, they are often the catalyst for further debt with crippling interest rates, and have become known as predatory loans.

For this reason, it is worthwhile avoiding payday loans at almost any cost. Yes, they may provide temporary relief, but are far more likely to get you into much worse trouble. It is important to know that there are alternatives.

The alternatives may be difficult to stomach, whether because it involves swallowing your pride or because it strains you in another way. However, they should definitely be considered before resorting to a payday loan.

Non-profits and Charities

Before you conclude that you are not in need of a charity and won’t take advantage of one, pause a moment. The reality is that charities are best-placed to help those who are still somewhat solvent. When they give money to people without any other forms of income, that money provides no returns. However, when you borrow money from a non-profit or charity, you are committing to paying it back.

Different charities and non-profits have different requirements when you apply for help. They may ask to see your payslips and for other personal information. Consider that when you get back on your feet, you will be motivated to help this charity. Turning to them for assistance gives you the best chance of helping yourself and subsequently helping them.

401(k) Loans

You can take a loan on your 401(k) if you have one from your employer. 401(k) loans are not the same as premature withdrawals from your 401(k). Rather, they function as any other loan, providing you with money upfront which you can pay off over a term of up to five years.

401(k) loans do come with interest, although rates are low. They do not, however, impact your credit score, and you do not require a good credit score to apply for one.

Credit Union Loans

If you are a member of a credit union in good standing, you can apply for a credit union loan. They will take your credit score into account, but will place more importance on your relationship with the credit union. They may offer payday alternative loans, which have a maximum interest rate of 28%.

These credit union loans will still be expensive and can negatively impact your credit score. However, you will receive better terms than you would from a payday lender.

Family Loans

Going to a family member or friend to ask for a loan is difficult. We all have a lot of self-esteem issues wrapped up in our family and social circles. Admitting that you need help will require you to swallow your pride. You will also be extremely aware of the tough position you might be putting them into.

However, this is a better route to take than payday loans and there are ways to do it that provide some relief. Draw up a contract rather than simply asking them for a deposit into your account. Treat their loan like you would any other loan, committing to paying them back according to specific guidelines.

By doing so, you are showing them that they are not simply giving money away to you. This will put them at ease and will help with your pride as well. Do not fall into the trap of promising more than you can guarantee, as that will only make things worse in the long run. Be as honest as possible, and remember that the reason you can ask them is that they know you would do the same for them.

Pawnshops

Pawning items is one of the oldest forms of short-term loans. When you go to a pawnshop, you are essentially taking a loan with a possession as security. If you do not pay back the loan on time, they take ownership of that possession and sell it. Pawnshops are still a viable way of getting quick cash, and if you know you will be able to pay the owner back, you are not risking too much.

There are significant downsides, of course, including the lack of regulation and the possibility that you may end up losing a prized or sentimental possession.

There are other alternatives to get quick cash that are better than payday loans. The main takeaway should be that payday loans are a terrible last resort. When you get a payday loan, you are likely to end up having to get one of the above alternatives, only at a later date and in much more dire straits.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes