A payday loan, also called a “cash advance” or “check advance” loan, is a type of unsecured personal loan based on how much you earn. These loans charge borrowers with high interest and short-term repayment demands.
Due to their extreme high-interest rates, payday loans may be considered predatory lending. A predatory lender usually doesn’t consider the borrower’s ability to repay and charges them with added fees through hidden provisions.
Payday loans can keep you in a cycle of debt, but you can break free by considering other options. Read on to learn why payday loans are not an ideal option for you and the better alternatives.
Amount Borrowed — There is a limit on how much you can borrow in most cases. The amount can range from $300 to $1000, with $500 being the most common amount.
High Interest — Payday lenders charge all borrowers the same interest rate. It can be as high as 780% in annual percentage rate (APR), with an average loan running nearly 400%.
Short-Term Repayment —Payday loans must be paid back once you get your next paycheck. The loan term can go from two weeks to a month.
No Installments — A regular personal loan allows you to pay back the money in installments. With payday loans, however, you must pay back the interest and principal all at once. This amount is usually much more than what your budget can handle.
Automatic Repayment —When taking out a payday loan, you sign a check or document that permits the lender to take money out of your bank account. If you fail to repay the loan as scheduled, the lender will either cash the check or withdraw the money from your account.
If you need to borrow money, consider the following alternatives instead of getting payday loans.
Create a Budget — Evaluate all your expenses, including rent, utilities, and food, and create a budget. Know how much money is coming in and how you can afford to spend on your expenses. Then, find ways to cut down on unnecessary expenses to be more in line with your income.
Get Credit Counseling —If you need help dealing with your debts, you may get credit counseling. There are non-profit agencies that offer credit advice at low to no cost. They can also help you set up a debt management plan (DMP).
Getting a personal unsecured installment loan from PCCU is a much better option than a payday loan. With lower interest rates and fees, they are especially beneficial for borrowers on a tight budget. With on-time payments, it will even help build your credit and help you qualify for lower rates in the future.
We understand that not-so-perfect things happen in life. If you are caught in the payday lender cycle, if you just signed your first payday loan, or if you are considering a payday lender as an option, then we want to talk with you about our personal loan options. We offer some of the lowest rates around, no origination or prepayment fees, and terms to make your payments affordable.
Additionally, we encourage you to take charge of your money by reviewing the free services provided through our partnership with GreenPath Financial Wellness. They offer financial coaching to help plan month-to-month expenses and short-term objectives for those experiencing cash-flow challenges. Check out our resource page!
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