Payday Loan Alternatives
Payday loans are useful but extremely expensive. What alternatives are there?
By Michael Strauss
We all experience being short of cash at the end of the month from time to time, when unexpected expenses crop up leaving our budgets short, or when we've been a bit reckless with our money at the start of the month and need to catch up.
It's at times like these that we might consider taking out a payday loan to bridge the gap between running out of money and receiving our next wage or salary. There's no doubt that payday loan services can be useful when you're in a cash crunch, but there's also no doubt that they're one of the most expensive forms of credit out there - APRs can easily be in the triple figure range or even more, because you're borrowing over a short term but paying a relatively high fee to do so.
The expense gets even worse if you follow the popular route of 'renewing' your loan each month, and it's then that the charges really start to rack up. So what are the alternatives?
Borrowing From Family
Firstly, if the amount of money you need is fairly small could you consider asking a family member for a loan? No one likes to go cap in hand, but if you can pay the money back quickly then this option is going to be much better for your finances in the long term.
Bank Overdraft
If this isn't possible or desirable, then maybe you could turn to your bank and ask for an overdraft, or an increase in your current limit. Given that most payday loans are for relatively small amounts, your bank may well be amenable to cutting you some slack. Granted, you'll have to pay interest and maybe a fee on top, but this is still likely to work out cheaper than your average payday loan.
Credit Cards
If your bank isn't prepared to help, then maybe you can make use of a credit card cash advance facility, where you can withdraw enough money from a cash machine to tide you over. This way of using credit cards isn't usually to be recommended as it's much more expensive than using cards for purchases, but if you compare the interest rates charged, it's still much cheaper than a payday loan. Just be sure to use a card which isn't carrying a large balance, so that you have a chance of clearing the debt sooner rather than later.
Debt Consolidation
The final option to consider is a more drastic one. The need for a payday loan tends to be a sign that there are underlying financial problems and your budget doesn't add up. If this is the case then maybe it's time to consider restructuring your financial life with a consolidation loan, to pay off all your existing debts and replace them with a cheaper single monthly repayment. If done carefully, this should free up enough money each month to remove the need for payday loans - and will be much cheaper in the long run.
If all else fails, and you really do need a payday loan, then be sure to shop around - although there aren't any really cheap lenders, some are more expensive than others so it'll pay to compare rates and fees before signing up.
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