When an emergency strikes and you have poor credit and no savings, it can seem like you have no other option but to take out a payday loan. But this type of loan can have serious consequences for your credit, savings, and even take you to court. It's important to explore alternatives to payday loans if you're short on cash. Payday loans can be costly not only financially but also emotionally.
To protect consumers, some states have passed laws that either prohibit payday loans or place restrictions on loan terms, such as limits on fees and loan amounts. These lenders often target people who don't have good credit or decent savings. Fortunately, there are loan options available that can help you get the money you need without having to resort to a payday lender. Loan comparison tools like Monevo can help you quickly and easily compare lenders, check rates, and see what loans you can prequalify for.
While payday loans are advertised as short-term solutions, they can create a debt cycle that is difficult to break free from. Even if your credit wasn't great before taking out the loan, a new collection action is almost certain to make it worse. However, if you have an urgent need for cash and are confident that you will be able to repay the loan with your next paycheck, then a payday loan may be an option. Before signing any loan agreement, payday lenders must disclose the financial charge and annual interest rate (APR) in writing.
Some borrowers continually apply for payday loans when they can't catch up enough to pay the original balance. The statutes also set the duration of a loan, some as short as 10 days, but other states do not impose restrictions on the length of a loan. Payday lenders are aware that the likelihood of receiving repayment decreases with the size of the loan. Due to the high costs associated with these loans, borrowers often struggle to repay them and get further into debt.
It's important to carefully consider your options before applying for a payday loan. An advance salary loan is an option offered by some employers that allows you to borrow money from your future paycheck. To avoid falling into debt with a payday lender, it's important to set aside money for emergencies and build credit in case you need to apply for a loan. Most payday borrowers work this way, either by paying a commission to renew a loan for two more weeks or by applying for new loans, plunging them into a dangerous cycle of debt. Many customers who use payday loans are unaware of high interest rates and focus more on so-called commissions.