payday loans Archives — Beating Broke

Options When Consolidating Payday Loans

July 5, 2021 By MelissaB Leave a Comment

Payday loans can trap borrowers in a vicious cycle. Because you’re short on cash and/or have bad credit, you borrow money from a payday lender. That money is usually due back in a short amount of time (often just two weeks). Yet, because of high fees and interest rates on the loan, you must pay back much more than you originally borrowed. If you’re unable to repay the loan in time, you can always roll the amount over into a new loan. This is how the payday loan trap begins. However, you can avoid or escape the payday loan trip by utilizing payday loans consolidation options.

Options When Consolidating Payday Loans

You don’t have to stay stuck in the payday loan trap. Instead, utilize these options to consolidate your payday loans.

Get a 0% APR Credit Card

If you still have good credit, consider applying for a 0% APR credit card. These types of credit cards will allow you to transfer your payday loan balance onto the credit card. Most of these types of cards charge a transfer fee of three to five percent. Then, you have twelve to eighteen months of 0% APR, which means every payment you make goes on the balance, allowing you to pay it off more quickly. After the introductory APR expires, you will pay the stated interest rate on the rest of your balance.

Get a PALs Loan

Another option offered by certain federal credit unions around the country is Payday Alternative Loans. These loans are available for $200 to $1,000 and are to be paid back in full in one to six months.

To qualify for a PALs loan, you must be a member of the credit union for at least one month. The credit union is especially interested in your income rather than your credit score, making these loans easier to qualify for than a 0% APR credit card. In addition, these loans can help build and improve your credit score.

Borrow from Friends or Family

Payday Loans Consolidation Options — Photo by Rajiv Perera on Unsplash

If you don’t qualify for either option already stated, consider borrowing from friends or family. However, if you choose this option, recognize that borrowing money can often ruin relationships. To keep this from happening, write out a contract stating how much you’re borrowing and when you will pay it back. For good faith, state how much you will pay weekly or monthly. If you want, you could even offer to pay back the loan with a bit of interest.

Then, dedicate yourself to paying off this loan as quickly as possible. Nothing ruins a relationship faster than someone who doesn’t pay back a loan to a family member or friend.

Final Thoughts

Payday loans seem like an easy, quick way to borrow money, but they can trap you in an endless cycle of debt. To break that cycle, utilize one of these payday loans consolidation options so you can stop paying so much in interest and pay off what you owe.

Are Personal Loans Ever Right for You?

Debt Consolidation Loans: What, When Why?

Are Personal Loans a Scam?

January 23, 2012 By Shane Ede 13 Comments

Consideration provided by Compare the Market

One of the reasons that I dislike payday loans so very much is because of the terribly high interest rates that the payday loan companies get away with charging. Couple that with the high fees, and it doesn’t take a genius to see why most people who know anything about personal finance will agree with the “parasitic lending” tag that I throw at them. By comparison, a personal loan isn’t much better. Or is it?

Personal loans have some of the same high interest rates, after all. Aren’t they just another way for the dastardly financial institutions to charge high rates, and rake in the high profits? Well, yes and no. Yes, they do charge high interest rates for personal loans, but there’s a very valid reason for that. And, as a generality, the rates are not as high as those charged for the payday loans. So, why do institutions charge higher rates for personal loans? The answer is in the guarantee.

Guarantee? What the heck am I talking about? In a typical consumer loan, you’re buying something. Instead of a personal loan, you get an auto loan, a mortgage, or a recreational vehicle loan. In exchange for the loan money, the lender gets a claim on the title of the thing being bought. If you default on the loan, the lender can repossess the car, house, or ATV that you bought with the money. Because they have that collateral, the risk of losing money on the loan is decreased, and they can afford to give you a lower rate because of that decrease.

A personal loan, has no such collateral. The only guarantee that you will pay the loan back is your signature. Coincidentally, that’s why they will sometimes be called “signature loans”. Because the lender cannot repossess your signature, the risk of default is raised. And, because it is raised, they charge higher interest rates.

At this point, you’re probably asking yourself, “What’s the difference between a personal loan and a payday loan, then?” Truthfully, there is very little different. The one difference, and it’s one that makes a big difference, is that a personal loan is usually issued by a financial institution like a bank or credit union, whereas a payday loan is issued by that shady pawn shop across the street. And, as a general rule, banks and credit unions are a bit more upstanding than the pawn shop. In most cases, they have a good reason to treat you fairly. They want your business. Not just your next loan, but your savings too. If they treat you poorly and charge outrageous rates, you’re likely to find somewhere else to put your money. That pawn shop could care less.

Another difference, that bears mentioning, is that banks and credit unions will usually require that you have a good to excellent credit rating before giving you a personal loan. For obvious reasons. The risk is already higher without collateral, so they don’t want to risk their money lending it to people who have sub-average credit scores. The pawn shop could care less.

Have you ever borrowed a personal loan from a bank or credit union? From the pawn shop?

photo credit: nerdcoregirl

Beating Broke Rules: Payday Loans

June 27, 2008 By Shane Ede 4 Comments

This one is simple. Or should be in any case. And yet, the industry keeps getting stronger and more prolific. But let me be clear on this one. Do not touch Payday Loans!

Payday loans are something that I and other financial folks like to call Parasitic Lending. They tout their convenience and ease all the while (like a parasite) putting you further and further behind with their high fees. That money that you thought you needed so badly becomes about 25% lighter before you even leave the office and if by some chance the check you wrote them is bad? You could easily rack up enough fees for that to exceed over 50% of the “loan”.

I cannot say this enough. Debt is BAD! And Payday loans are the worst of the bunch. The only thing that I can think of that is worse would be bookies that take broken fingers and knees as fees rather than money. Yes, they are that bad.

Do yourself the favor. If you’re even thinking about using a payday loan service, don’t. Things will be tight for a while, but if you truly work at it, you can get by without them and you will be much more financially sound without them.

Beating Broke Rule: Don’t touch PayDay Loans

There are plenty of alternatives around. You can get a pretty good rate on a shorter term loan through a peer-to-peer lender like Lending Club. You can sell off some of the junk you don’t need for some quick cash. You can ask your bank or credit union. You might be surprised by what they say. Especially if you’ve got a relationship with them.