Payday loans may seem like a godsend when you need money quickly, but they come at a high cost. Their annual percentage rate can be as much as 20 times that of a credit card, and people often balk at credit card interest rates. Luckily, there are alternatives to signing up for a loan that may send you spiraling even further down into financial distress. Here are four other options to consider before walking in the door of a payday loan office:
- Small, Low-Interest Loans
Unlike payday, there are nonprofit organizations that offer quick cash loans for those unexpected, significant expenses that need immediate attention. These organizations charge meager interest rates and tell you right up front what the final value of the loan will be with all rates and fees included. They even show you different repayment options up front to help you decide if taking on this loan is financially feasible for you.
When your financial world gets challenging, don’t be afraid to reach out and negotiate. Some businesses you owe money to may even offer a payment plan option on their website, saving you the hassle of trying to explain your situation over the phone. The key to this situation is that you need to either ask for an extension of your deadline or create a payment plan with whomever you can. If you neglect to do this, your missed payments will hurt your credit score and make your financial situation much harder to rebound from in the future, even after you have paid off all your debt. Negotiating a payment plan with debt collectors when they call is also an option.
3. Friends and Family
Money issues can create bad blood between friends and family, so if you are going to ask those close to you for a loan, treat it like a business deal. Take the time to create a solid picture of how much you are requesting, your repayment deadline, and their expected rate of interest on the loan. Show them you are committed to the process by creating a contract that both parties sign. Set up an online, recurring payment each month to ensure that repayment funds arrive in their account before they are spent anywhere else. If you can complete this successfully, you will not only have alleviated your financial burden, you will have proven you are trustworthy.
For some, asking an employer for a salary advance can be less threatening than asking your family. However, the approach should be similar. The worst thing you can do is wander up to your boss at the water cooler and tell him/her you would like an advance on your salary with no plan in mind. You need to show that you have done the research. Check company policy first to see how the company states these situations should be handled and what you have a right to expect, then set up a meeting and present your case complete with repayment plan and timing. Whether or not they decide to give you the advance, write a note thanking them for their time and consideration of the issue.
While payday loans may seem tempting when your financial situation is challenging, you should exhaust all of your alternatives before pursuing one. Start by negotiating payment plans wherever possible, and don’t be afraid to ask your family, friends, or employer for a loan (preparing a solid case before you do so). If these options are insufficient, take out a small loan with a low-interest rate. Above all, be creative and don’t resign yourself to impossible terms.