Alternatives to Cash Advance Loans
At some point in their lives, almost everyone will face some type of financial emergency. Whether it's an unplanned medical expense, a "can't wait" car repair, or some other urgent monetary need, trying to find quick access to cash funds can put anyone in a very difficult and stressful position.
Due to the financial meltdown which started in late 2007, millions of Americans watched as their savings and retirement funds shrunk or disappeared altogether. Furthermore, the collapse of the housing market caused many people to lose the equity they had in their homes and also forced many homeowners into foreclosure and even bankruptcy. Consumers were hit from all sides as job security evaporated, leaving vast numbers of people either unemployed or underemployed. And as if this weren't enough, prices continued to rise for most everyday commodities including food, clothing, and fuel. It's no wonder that people were eager to find ways to borrow cash easily and safely.
The payday loan industry has grown enormously over the past decade. These short-term loans provide consumers with much needed cash in a short amount of time. But they are not without risk. For the convenience of receiving cash funds quickly (usually within 24 hours) and having to fill out very little paperwork, consumers are charged much higher APRs and fees. Even individuals with poor credit histories are not disqualified from taking out payday loans.
Payday loans are classified as short-term loans because they are meant to be fully repaid within a very short time period (normally two weeks). For this reason, consumers are urged to use a payday loan only for true financial emergencies. Fourteen days is not a very long time and if a borrower is unable to repay the loan when it is due, an extension will be needed. This will add more fees and interest to the original loan and the due date will only be pushed out for another two weeks. This can create a cycle of debt which is extremely difficult to overcome.
Many consumers are not aware that there are alternatives to cash advance loans which are much less risky for the borrower. If you are now faced with a financial emergency, you would be wise to consider the following borrowing options. Payday loans can be a real lifeline for individuals who need quick access to cash funds. But they should only be considered after all other possible sources of borrowing have been exhausted.
If you are like most Americans today, you are probably living from paycheck to paycheck and have no savings to fall back on. But it's worth mentioning an important fact. Financial emergencies always seem to happen at the worst possible time. And common sense tells us that they are always going to happen, no matter how carefully you plan things out. It is very important to have an emergency fund set aside for just these situations. Even if you begin by putting away just $10 a week, it's a start. It also gets you into the habit of saving, which is equally important. In the future this emergency savings account will allow you to handle an unexpected expense without having to take on new debt. This should be your goal.
Alternative Borrowing Options
Here are some alternative sources of borrowing which are more affordable and definitely more consumer-friendly than cash advance loans.
- Speak with your creditor. If your financial emergency involves payments that are due to a creditor, contact them immediately and try to work out an extension. Most companies are willing to work with their customers to help them through a difficult period. The important point is to speak with them and not ignore the situation.
- Ask about an advance on your pay from your employer. If you are dealing with a one-time financial emergency, consider asking your employer for an advance. The positive aspect of this is that it's not a loan and there's no interest charged. Obviously, it does bring your employer into your personal financial situation but it's an option worth thinking about.
- Consider a loan from a credit union. If you belong to a credit union, check to see if you can qualify for a small, short-term emergency loan. Many credit unions offer this type of loan to their members who are dealing with financial problems.
- Ask a friend or relative if they can help. This can be a touchy situation. If you have someone who is willing to do this, you should treat the loan as a regular business deal and put everything in writing. You don't want to ruin a friendship or family relationship over money.
- Investigate a small bank loan. Many banks today now offer small-dollar loans to consumers in financial need. These are similar to payday type loans but have repayment periods beyond two weeks. The maximum amount of these loans is $1000 and the interest is capped at 36%.
- Get a cash advance from your credit card. If you have a credit card which allows cash advances and there is money available, you might consider using it for a financial emergency. The interest rate will probably be between 25%-30%, but it's still cheaper than a cash advance loan.
- Find out about small consumer loans. Many small consumer finance companies offer small, short-term loans which can have annual percentage rates of up to 60% but normally range from 25%-36%. Even with the highest APR, these loans are still less costly than a cash advance type loan.
Responsible Small Loans
When you are looking for alternatives to cash advance loans, your goal should be to find a responsible consumer loan which has these features:
- No personal check requirement
- No unfair collateral (such as a car or home title)
- At least a 90-day repayment term with installment payments
- Limited renewals (no more than four per year)
- No mandatory arbitration clause (you don't want to give away your legal rights)