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Substitutes for Short Term Payday Loans

[Jun 11, 2010.]


Consumers who overuse payday advance loans usually do so because they have little or no savings and are having problems managing their money. Sometimes the problem is too much debt, other times the consumers simply spend everything they have without saving for an emergency.

Alternatives to Borrowing Payday Loans

  • Put aside money from each paycheck with an automatic transfer of as much as you can or as little as $25 to build a small savings account.
  • Ask your employer for a salary advance.
  • If you have credit available on a credit card, take out a cash advance if it's less costly than short term payday loans.
  • Ask your creditors for an extended repayment plan.
  • Postpone the expense; for example, wait to repair your car and rely on public transportation for a week or two until you have more cash.

Loan Alternatives to Payday Advance Loans

  • Credit union loan. Credit unions sometimes offer members payday advance loans at lower interest rates than payday loans with direct lenders. These loans typically have a longer repayment term.
  • Small consumer loans. Some consumer finance companies offer short term, small loans that are less costly than payday loans. For example, a loan for $1,000 could be repaid over a year at an average rate of 25% to 36% APR, which is much less expensive than $200 or $300 payday advance loans.
  • Military loans. Some companies offer loans for active duty and retired military personnel for $500 to $10,000 at an interest rate of 10% to 13% less than military payday loans. The military loans average 33% to 35% APR.

The Center for Responsible Lending suggests that small loans should have the following features in order to provide a better solution to debt problems than short term payday loans:

  • A 90-day or longer repayment period
  • Repayments made in installments rather than a lump sum
  • No personal check, direct debit, or car title required as collateral
  • Reasonable renewal limits
  • Consideration of the borrower's ability to repay the loans
  • No mandatory arbitration clause

Consumers considering using payday loans can also request emergency assistance from community organizations and social service groups, particularly if they need the funds for utility bills, food, or medical assistance.

People with too many payday loans should consider working with a nationally accredited consumer credit counseling agency to gain control over their finances. These agencies can help you develop a budget and a program to find debt solutions and create an emergency savings fund.


About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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