Alternatives to payday loans
by
Patriciah Njaramba
A payday loan is a small, short-term unsecured loan that is sometimes referred to as a cash advance. Payday advance loans rely on the clients having previous payroll and employment records.
For consumers with debt difficulties, there are a number of options to payday loans such as: savings accounts or rainy-day funds; salary advances from employers; credit card advances; working out extended repayment plans with creditors; and loans which can be sought from close friends, social service agencies, religious institutions, or relatives. Besides, most lenders have adopted lower-cost choices to payday loans that have improved repayment terms.
Options to payday loans should have:
At least a 90-day payment term which can be repaid in installments;
No personal check mechanism or other unfair guarantee (such as a car title);
Workable renewal limits (nearly three times is ideal);
Consideration of borrower’s capability to settle the loan;
No compulsory arbitration clause.
With payday alternatives, borrowers pay late fees or penalty fees once. The “debt trap” forces payday loan borrowers to pay fees every fortnight. At the end of the day, revolving payday loan fees increase debt loads and financial hardship, which leads people into bankruptcy rather than helping them get back on their feet.
Some payday loans alternatives are:
1.Payment Plan with Creditors
The best alternative to payday loans is for consumers to deal with their dues directly. Most creditors are willing to negotiate partial payments in the existence of a payment plan. Working out a payment plan with creditors allows the consumer to adjust billing to pay off bills over a longer period of time.
2.Advances from Employers
Some employers extend paycheck advances to their staff. As this is an advance and not a loan, the advance is interest free therefore cheaper than a payday loan.
3.Consumer Credit Counseling
There are various consumer credit counseling agencies throughout the country that can help consumers work out a debt repayment plan with creditors or come up with a budget at little or no cost.
4.Emergency Assistance Programs
Many faith-based groups and community organizations provide emergency assistance directly or through social services programs.
5.Credit Union Loans
Several credit unions give small, short-term loans to their members at an affordable interest rate than the usual payday loans. Some go the extra mile and offer free financial counseling and a savings plan to help members get back on track. Many other credit unions offer very low interest rate loans with quick approval on an emergency basis. These loans give the borrowers a real chance to repay with longer payback periods and installment payments, unlike payday loans
6.Cash Advances on Credit Cards
Credit card cash advances are much cheaper than getting a payday loan. Some credit card companies focus on consumers with financial problems or poor debt histories. Consumers should shop around and not assume they do not qualify for credit cards. Secured credit cards are another alternative. A secured credit card is tied to a savings account, where the funds on the account ‘secure’ the amounts billed on the card. Once a consumer has productively used the secured card for a while, they may then qualify for a regular unsecured credit card.
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