Payday Loans Should Be a Last Resort

[Sep 17, 2009.]

 

Many people turn to quick loans from payday lenders when they're desperate for cash. But borrowing from a payday lender comes with hefty fees and can send a borrower further into debt. Folks looking for quick loans should consider the following options before turning a cash advance store.

Personal Loan from Credit Unions

People who belong to a credit union through their job or in their community may qualify for a small personal loan. Many credit unions offer short-term loans as an alternative to payday loans, which are known for triple digit annual interest rates. Borrowers should make sure they understand all the terms of a credit union loan because some of the fast loans have come under fire for having interest rates not much better than those offered by payday lenders. Some questions to ask about short-term credit union loans are:

—How many days will the borrower have to repay the loan?

—Can the loan be repaid in installments?

—Is there a requirement for putting money into a savings account?

Loans from Social Lending Networks

Some borrowers who have been turned away by traditional lenders have found success borrowing money through social lending networks. Lending networks like Lending Club and Prosper allow people to receive loans for any purpose. The better a borrower's credit, the better terms they'll usually receive.  People are willing to lend money to strangers because they share the risk with a pool of other lenders.

Loans from Family and Friends

Some people may have friends and family who are willing to lend them money during a time financial stretch. While it may be tough to go hat in hand to friends and family, borrowers are more likely to get a better interest rate than if they went to a payday lender. Also, Virgin Money is another social lending network that allows people to set up a loan agreement with friends and family who are willing to lend them money.  

Negotiate with Creditors

Borrowers should pick up the phone and call their creditors to get interest rates lowered, balances decreased, and more favorable terms for their account. The recession has hit lenders hard, but many credit card companies and other lenders are willing to negotiate with customers.  The goal is to get a deal that will help pay down debt.

Payday lenders can be found in many communities and online. But instead of going to one strictly for convenience, it's important to check out all other options first.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.