Many financial experts state that payday loans and cash advance loans can pirouette borrowers into a dangerous web of cyclical debt, which will make them borrow again and again to pay back the money they had borrowed in the first place. As much as $42 billion dollars are squeezed out of consumers in the form of fees on payday loans, according to the report put forward by the Center for Responsible Lending. To pay back a $300 loan the average payday loan borrower ends up paying back $750. The average annual interest on payday loans and cash advance comes to 400 percent. The report says that though borrowers are easily enticed to apply for payday loans, the trouble comes when they have to pay back the amount with high fees in a two-week period. When they are not able to cough up money, they end up taking more loans which add to their woes.
In fact, studies show that 90 percent of payday loans are accessed to by borrowers who apply for these nearly five times a year. Out of this 62 percent goes to borrowers who conduct 12 or more transactions on a yearly basis. Does that mean payday loan is all evil? The answer is no, it is good if you can pay it back on time. But for most people, this seems like a difficult thing to do, probably out of poor budgeting or even lack of money. In these cases, it is better to go for alternatives to payday loans or cash advances. Here are some of the options you can exercise –
1. Loans through credit cards – Consumer advocates say borrowers are better off taking loans through a credit card compared to a payday loan. Matthew Johnson, a financial expert says, “Even the most expensive credit card has rates lesser than payday loans. Secondly you can even pay it back in the form of minimum due or even pay the entire thing by the month instead of the pressure of paying the money back in just two weeks as is the norm in payday loans. “
2. Credit Union Loan – You can find credit unions at your neighborhood or workplace. After joining it, you can talk to the union head to help you out with your financial crisis. They can help you with short-term financial loans. They can also offer low-interest loans that are affordable than traditional banks and way cheaper than payday loans.
3. Payment plans with the creditor – You can also choose to deal directly with the debtor. If you are able to shell out partial payment and tell them that you are able to pay them on a particular day, they can work out a payment plan to this effect.
4. Ask your friends and relatives – You can ask your family or friends to help you with your financial plan. Just make it a point to pay them quickly and treat the financial obligation as an official one. The benefit is that in most cases, you do not have to pay back the money with interest.