Times are still tough, and payday loans are becoming a more popular source of short-term financing. This is especially true for low-income families. Payday loans are easy to get and don’t require any sort of credit check, so they are popping up everywhere.

A payday Loan is a cash loan given to an individual based on the fact that the loan is expected to be repaid with their next paycheck. It’s kind of like getting part of your next paycheck early. The repayment period is based on your pay schedule. The borrower needs to show proof of employment and a bank statement. The loan applicant then writes a post-dated check for the amount of the loan plus some “administrative” fees. Some states require the check to be dated for the day the borrower receives the money and the lender is expected to hold the check until a specific date in the future. This contract is necessary in these states because these states' no longer allow for a person to write a post-dated check.

On the date the loan comes due, the recipient of the loan is expected to go to the lending store to pay the loan off. If it is not possible for the person to come into the store, the loan company can deposit the check directly into their bank. If the borrower can't repay the loan at that time, the loan may be extended, which may involve additional fees. Failure to repay these loans usually result in the lender threatening criminal prosecution or check fraud.

These loans carry a high price tag. Finance charges range from 15 to 30 percent or more of the amount being borrowed. Since the percentage is so high on money to be paid  back in just a few weeks, it’s comparable to getting a loan with an APR of around 800 percent.

Payday loans are easy to get and lack the traditional credit checks, so companies often prey on lower income neighborhoods knowing they are more likely to obtain one of these loans. The down side to this is many of these people are experiencing financial hardship already.  Borrowing money with such a high interest rate just makes matters worse. Many times, these people find themselves unable to repay the loan when it comes due. This leads to additional bank charges for bounced checks and the cost of the loan.  Sometimes the borrower has to extend the loan, causing even more fees. This is a vicious cycle that many have a hard time climbing their way out of.  Even if they are able to pay the loan off on the next payday, they do not have the funds needed to cover their expenses. Then it's back to the store for another loan.

Additionally, since many of the borrowers have already claimed bankruptcy, they can't find relief with bankruptcy because of the statute on the length of time that each person can file a bankruptcy claim.  Because of this, the cycle often times continues indefinitely.

Here are some alternatives to obtaining a Payday loan:



Negotiate a payment plan with your creditors

As I mentioned, times are tough for many Americans.  Many companies have developed new and creative plans to help people pay off their loans. Consumer Credit Counseling services can sometimes help to facilitate this negotiating process. Most companies are more willing to negotiate these days because they understand that if they don't, the borrower could file a bankruptcy or simply refuse to pay.

If the borrower refuses to pay, the creditor in a position to come after the borrower through legal channels.  This process can be very costly to the lender. Further, just because the lender does get a court order against the borrower  to pay a certain amount to the lender, it doesn't necessarily mean they're going to get it.  You can't squeeze blood out of a turnip.



Credit cards or secured credit cards

There are many credit card companies that offer high interest rate credit cards.  Though the interest rate is high, it usually comes nowhere near the interest rates that Payday loan companies charge.

If you can't qualify for these high interest rate cards, there are companies that offer “secured” credit cards.  These cards are usually tied to a savings account.  The amount of the credit line is usually the amount that is in the savings account.  It might sound funny to get a credit card that is tied to an amount that you already have.  I mean, if you already have the money, you don't need a credit card, right?  This is true, but it is a way to rebuild your credit.  Often times, companies that offer these secured credit cards will transfer your card to an “unsecured” credit line once you have established a sound payment history.  The time that it takes to establish “good behavior” is usually between 6 to 12 months.



Advances from employers

Many employers are willing to grant you an advance against your pay.  This, of course, depends on the employer, your length of time of employment with the company, how good and reliable of an employee you are and the amount of the loan.



Advances from family and/or friends

I know, I know... this is an obvious option.  But, it's one that many people don't consider because of pride, or the embarrassment of having to ask someone you know, but consider this... your family and friends might be more understanding than you might think.  Most everybody has run across lean times in their lifetimes at one point or another.  Considering that they are your family or friend, they probably would rather loan you the money than have you run the risk of being in a worse spot by obtaining a Payday loan.

If you still don't feel comfortable asking, maybe you could insist that it be more of a business deal with whoever you are asking to get the loan from.  Offer them half the amount of financing that you would have to pay the Payday loan company and within the same time frame. You intend to pay the loan company anyway, why not try to save half of what you would have to put out for it.  It also offers the “lender” a great return on their investment.



Credit Unions

Many credit unions offer small, short term loans. Because the loans are smaller, their risk is limited.  This is also a way that credit unions can establish a long-term, trusting relationship with you.  Loyalty like this goes a long way on both sides of the table.  When you get back on your feet, you're much more likely to keep your savings and checking accounts with them... even when the banks offer you their “bribes” to get you to bank with them once you have some cash flow again. You'll also be more inclined to apply with the credit union that helped you during lean times for bigger loans for cars,  furniture, even homes.  Credit unions see opportunities like this, whereas banks often times has more stringent restrictions with their lending policies.

 

Overdraft protection with your current bank

All banks offer overdraft protection.  The fees associated with over drafting a check sting a little, but nowhere near the amount of pain caused by a Payday loan.  If it truly is a short term loan that you need, overdraft protection is a convenient alternative.  

Banks have various credit requirements for obtaining overdraft protection.



Lines of credit from finance lenders

Because these loans are usually required to be attached to collateral, many banks are willing to offer small lines of credit (typically from $2000 - $5000).  Though the loans usually have a high interest rate.  They may range between 25-40%, remember, that's based on an APR on not paid within a two or three week time period.



Garage sales or selling unused items online

One man's junk is another man's treasure, right?

Think about it.

You haven't skied in years, but you have a couple old pairs of skis in your garage; and old TV or computer; an old baseball card collection; cameras, old cell phones, DVD players, clothing,  power tools... the list goes on and on.

Maybe you don't have time to set up a big garage sale and need the money sooner.  Take a picture of an item you want to sell (you don't even have to have a picture, but it helps your stuff sell better) and list it online through Craigslist or on a variety of other free local websites.  With aggressive pricing, you could have cash in your hand within an hour. The beauty is that you're killing two birds with one stone by uncluttering your house at the same time.

Don't have a computer or you need the money fast to fix your computer?Your local library has computers available.

These are just some options that you have for getting “small” amounts of cash when you need it.  Though, even the smallest amounts of cash seem large when you don't have it.

I know that when you're strapped, desperation can kick in and make you rationalize things to do that you know are against your better judgment.

I hope that my explanation of  how badly Payday loans can set you back, along with these suggestions about alternative means over getting over these “humps” have helped  you with your decion-making process.



Peace and Success,



Kevin Halper