Payday loans can be a trap. Their high interest rates, APRs, and often predatory terms make them dangerous even if you can’t see any alternatives. But alternatives do exist.
Payday loans are designed by their lenders to be short term high interest unsecured loans. While they are technically secured by a post-dated check, because the security is not property that can be sold, they are classified as unsecured loans.
One alternative to payday loans is a loan from a pawnbroker. Pawnbrokers are a lot like payday lenders in that they give out short term loans. However, pawnbroker loans are secured by collateral, an item of real property you give to the pawnbroker. You then have a certain amount of time to repay the loan with interest and redeem your item.
Another alternative to payday loans is a loan from a credit union. Credit Unions are difficult to join as they are usually run by a union, hence the name ‘credit union’. These institutions are maintained and funded by the union to give their members access to affordable and secure loans and to help them avoid borrowing loans like payday loans. If you’re a member of a union that maintains a credit union, then it might be to your advantage to join.
Similarly, only a few employers especially in these troubled economic times, offer paycheck cash advances. Sometimes an employer may be willing to advance you money on your paycheck, but if the company is experiencing financial trouble and they anticipate employee lay-offs they may be unwilling to lend.
You may also be able to get a cash advance from one of your credit cards. Each credit card company that offers cash advances has different policies and procedures for taking out cash advances. Mostly these loans work like getting cash back at a store except you have to repay the amount along with everything else.
A final alternative to payday loans are small consumer loans. Like payday loans, these are high interest low principal unsecured loans. There is not a lot of difference between a consumer loan and a payday loan. Many payday lenders act as small consumer lenders in addition to payday lending. Other payday lenders call themselves small consumer lenders in order to get around the laws in those states that have made payday lending illegal.
Even in an emergency you should be careful who you borrow money from. Taking out a loan in desperation can cause you more problems than it causes. You should always take the time to investigate the lenders in your area to make sure they comply with your state’s laws and are properly licensed.
With the dot.com boom, many payday lenders now offer payday loans online. However, if you find yourself with no alternative but to take out a payday loan, you should avoid a lender whose business is solely online. Many online lenders ignore state payday rules and impose terms on their borrowers that are illegal. So if a payday lender doesn’t have a physical storefront presence in your state, then you should avoid them.
If you’ve been caught in the payday lending trap and need a way out you have several alternatives. Payday loan settlement and consolidation programs are available in every state from debt solutions firms who know the laws and how to get you out of debt.
Written by Caroline Palmer
Associate Attorney, Oak View Law Group