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With the end of the COVID-19 restrictions, there are a whole bunch of people looking forward to doing a whole bunch of things that have been denied them for over a year. Unfortunately, even with the new relaunch, tight budgets aren’t exactly a rarity.
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Payday loans are great – quick cash without credit checks or digging through tax returns like a personal loan. It sounds too good to be true.
It is because it is. About 12 million Americans take out these easily accessible unsecured personal loans each year, many of whom struggle with monthly bills and out-of-pocket expenses, according to Forbes. Many are unaware of the danger of incredibly high triple-digit interest rates.
“Unlike other loans, payday loans must be repaid in full on the borrower’s next payday at annual interest rates of around 400%,” wrote Melissa Rayworth of TakePart. Rayworth also noted that up to 97% of people will borrow from a payday loan again.
Payday loan borrowers are vulnerable to a downward spiral of debt that can last for months or even years, a destroyed credit rating, and predatory and aggressive collection practices from debtors who want immediate repayment. “If you take out a payday loan, you will almost always lose out financially,” wrote Trent Hamm of The Simple Dollar. “They almost always cause more problems than they solve.”
The good news is that there are better ways to get money fast.
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Avoid Payday Loans With These Quick Cash Alternatives
1. Take out an alternative payday loan.
Yes, these actually exist. Veridian Credit Union, based in Iowa, for example, offers a PAL with a maximum loan amount of $1,000 and a repayment term of six months at an interest rate of around 20, usually regardless of the borrower’s credit score. Although not the lowest interest rate, it is more manageable than the high interest rates and short repayment terms of a payday loan. Keep in mind that Veridian is a credit union that serves residents of certain counties in Iowa and Nebraska and a few other selected bands. If you’re not in their area of membership, ask a community bank or credit union near you if they offer a comparable product.
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2. Get a cash advance on your credit card.
Another similar, but less expensive, option is to contact your credit card provider for a modest cash advance. Again, the interest rates may not be the lowest, but this time you’re borrowing against your own credit limit, not a third-party payday provider. If the cash advance option seems too overwhelming, just use your credit card for your post-COVID celebration and avoid using it again until you’ve paid off your balance.
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3. Withdraw from your emergency fund.
If the extra interest from using your credit card is too much, you can always try to withdraw just enough money from your emergency fund to cover holiday shopping costs. Since you are acting as your own lender here, this loan is entirely yours to repay – but financial discipline is important. Let too much time pass and you may never be able to replenish what you borrowed. And that means you might not have enough money if a real emergency arises.
4. Ask your employer for an advance.
Your job may allow you a cash advance taken from your next paycheck. It’s not a loan, so you won’t have to worry about interest or repayment since it’s money you’ve earned. However, keep in mind that if you ask for $200, be prepared for your next paycheck to reflect that difference. It’s also wise not to get into the habit of asking for cash advances. Taking frequent financial shortcuts could leave a bad impression on your employer. Ask for overtime instead – overtime can earn you extra money.
5. Sell, pawn or auction things you no longer want.
Now is a better time than ever to sell some of those old things taking up space in your home. It can be anything from a used cell phone to furniture, vintage clothes, household appliances, etc., a rich source of quick cash. Go the online route, such as eBay, Amazon Marketplace, or Craigslist, or Check out apps like OfferUp and Letgo.
6. Reduce your expenses.
One of the good things to come out of COVID-19 is that many households have reduced their spending. Some people cut their budget out of necessity. Others were living on less due to lifestyle changes associated with working from home. When the skies clear and life returns to semi-normal, resist the urge to slip back into pre-pandemic patterns. Try spending less on things like clothing, entertainment, and other disposable income purchases. If you put the difference aside, you won’t need a disaster payday loan. Some financial experts even suggest adjusting the tax withheld from your paycheck so that you have more money now than later.
7. Save money with an app.
It’s not a source of quick cash on its own, but the right app can go a long way to ensuring you’re not desperate enough to consider a payday loan the next time an emergency knocks on your doorstep. . Acorns is the original summarizing app – it rounds up every purchase you make to the next dollar and invests the difference. Chime has some cool autosave features and lets you take money out of your paycheck sooner. A good application and a little discipline now could give you the financial cushion you need to never have to worry about payday loans again.
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Andrew Lisa contributed reporting for this article.
Last update: September 6, 2021
