How to avoid the trap of payday loans

When unexpectedly arise expenses, and you do not have savings to respond, it might seem attractive to ask for a loan of day of payment. In the united States, this mechanism offers quick cash and are very easy to get for people who have a job.

However, the loan of day of payment is the most expensive way of getting money borrowed. For example; if you take out a loan to buy a new battery pack car and does not manages to refund on time, you could end up paying more in charges than what you paid for the same battery.

Before taking this route, try to understand why you should avoid this type of loan and learn more about the alternatives that are offered.

HIGH COST

The payday loans are loans small, short term that are easily obtained because the lender rarely checks the credit of the borrower. You write a check for the amount you want plus the fee charged by the lender, or it gives permission to those that take out money automatically from your bank account after you receive your next cheque of payment.

The fees charged by these lenders are high, typically $15 per every $100 dollars that is borrowed. When it comes to the agreed date, you can let the lender cash the loan, or the debt may be extended, delaying the payment to change more charges.

Here is the problem: the positions that they charge lenders raise the effective interest rate to a level exorbitant. A charge of $15 to borrow $100 dollars may seem like a rate of interest of 15%. In reality, due to the short term of the loan, and is equivalent to an annual rate of 390 percent –more than 10 times the typical rate for a cash advance on a credit card, which is an option very expensive.

ALTERNATIVES TO PAYDAY LOANS

There are many and better options that payday lending –in addition to others that may be worse. The following strategies are some alternatives to get through a financial emergency.

Personal loans: Loans without collateral –or “personal loans”– banks and credit associations are preferable to those with access to this kind of lenders. These typically come with a fixed interest rate and require the borrower to pay off the debt with a program of fixed monthly payments. The financial companies offer similar products, so-called installment loans.

“The installment loans traditional are the best alternative to payday loans for consumers, because they offer a clear path to remove your debts through equal payments monthly that are manageable,” says Karen Klugh, exportavoz of the American Association of Financial Services, an industry group.

The installment loans will also offer you much more time to pay the debt. This financing usually allows you to borrow money and at a cost considerably less than the payday loans.

Advance payment of salary: Ask your employer for an advance payment of your salary, that usually costs you nothing. Some companies also offer loans low-cost to the workers who are going through a crisis. If you’ve been a good worker for several years, this can be an excellent option.

Indulgence of accounts: Look for creditors that do not charge interest, such as public utilities or cable companies-tv, and find out if they accept late payments. Use the money that is left by not paying those accounts, for their needs in case of an emergency. The people who already have outstanding loans can ask for modifications to their debts to enable them to increase more flow of money.

Account advance short-term: Some banks and credit unions offer cash advances short-term as an alternative to the pay day loan. While the costs are not so high, they can still be quite expensive. By law, credit unions cannot charge more than 28% of the annual percentage rate on small loans at short time limits, so that these can be more reasonable than the banks.

Loans backed by the church: Some churches now offer them to members who are faced with a financial crisis small loans to some fairly low rates. Find out if your parish or temple offer small loans for emergencies.