Since the onset of the recession, many people have been in the position of being left short of cash towards the end of the month, and payday loans seemed like a good idea to make ends meet until the next paycheck.
However, this one-time decision turned into a monthly habit. Usurious interest rates, huge late payment penalties are forcing people who take on a short term loan to continue to borrow from lenders – not only for their daily expenses, but also to be able to pay back previous loans.
Before the Center for Responsible Lending started raising awareness regarding the lending practices of payday loans shops, their clients were silent victims who felt insecure about making their struggle to repay these loans known to the authorities protecting their rights. As financial education became more and more available, through brochures and internet pages, a more educated public started seeking alternative solutions for quick loans.
If you, or someone you know, are in dire need of cash just until the next paycheck, the following are better alternatives to any offer that short term lenders could make you:
- Credit union loans
Credit unions are established at local community level, so their managers are well informed of the people’s needs for small amount loans. They also know that these people may not qualify for a loan from an established bank due to bad credit score.
One great lending program implemented by the Credit Union in the state of North Carolina is SALO – Salary Advance Loan. This loan does not carry a fee and has a 12 percent interest rate. By comparison, any instant cash loans by payday lenders are laden with various hidden fees and carry interest rates of around 500 percent.
The success of the SALO loan program prompted many other credit unions to come up with similar solutions for employed people in need of a short-term cash boost. The conditions vary from state to state, but the lending limit is established at around $500. The search tool of the Credit Union National Association will help you identify the lending program available in your area.
- Small amount loans from banks
After a pilot program implemented in 2008 by the Federal Deposit Insurance Corp. proved successful, more and more banks are willing to offer loans under $1,000 to people who would not qualify for standard loan programs. Right now, 31 banks all over the US are part of this project and it is quite visible that it works and that it is a good solution both for banks and for the people who need small amounts of money for a short term.
The general conditions of this type of loan include a fixed interest rate of 36 percent and a lending period longer than one salary cycle. These conditions are working to the advantage of the lender and borrower at the same time, making the small loans from banks a much better alternative than bad credit payday loans.
You can identify a bank participating in this lending program close to where you live by accessing the web page of the Small Dollar Loan Pilot Program found on Payday Loans Depot
- Advance on salary
This option will reduce the amount of your next paycheck, but it is still preferable to payday loans that will dig through your finances for months to come. Some people find it hard to approach their employers and admit that they are short of money.
The best solution is to approach someone from the HR department you are on friendly terms with and discuss the issue in private, possibly during the lunch break. Many companies nowadays accept the repayment of a salary advance through small monthly installments, which is a great advantage to you.
- Pawn Valuables
Installment rates on pawned goods are still lower than payday loans installment rates. It is not easy to part with valuables, even for a short time, especially if they hold memories for you. However, you do have the opportunity to recover them. If you sink too deep in debt from instant loans, you may be forced to sell these objects and lose them for good in order to repay your debts.
In times of financial crisis, people are forced to make difficult decisions when they have bad credit scores and they need cash on the spot. However, before you decide on payday loans, use the little time you have available to explore other ways of securing the amount of money you need.