The holiday shopping season is coming up, and people in search of some quick spending capital might strongly consider taking out a payday loan. Think about it — it’s a quick source of cash without the need for the credit checks and extensive protocols synonymous with personal lending. It sounds too good to be true.
That’s because it is. More than 19 million people struggling with their finances take out one of these unsecured personal loans each year without seeing the danger signs pointing to their finances, like insanely 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 percent,” wrote Melissa Rayworth over at TakePart. Rayworth also noted that up to 97 percent of people will borrow from a payday loan again.
Payday loan borrowers are also exposed to a downward spiral of debt that can last months (if not years), a wrecked credit standing and predatory, aggressive collection practices from debtors who want immediate repayment. “If you take out a payday loan, you’re going to come out the financial loser almost every time,” wrote Trent Hamm of The Simple Dollar. “They almost always cause more problems than they solve.”
Before funding your post-Black Friday Christmas shopping with a payday loan, look at some of these simpler — and reasonably safer — ways to get some money fast.
Avoid Payday Loans with these Quick Cash Alternatives
1. Take out a Payday Alternative Loan.
Yes, these actually exist. Iowa-based Veridian Credit Union, for example, offers a PAL with a maximum loan amount of $1,000 and a six-month repayment term at an interest rate of around 20% (usually regardless of a borrower’s credit score). While not the lowest interest rate, it’s more manageable than the high interest and short repayment terms of a payday loan. (Keep in mind, Veridian is a credit union that serves residents of certain counties in Iowa and Nebraska and a few other select groups — if you’re not part of its membership field, ask a community bank or credit union near you if it offers a comparable product.)
2. Get a cash advance from your credit card.
Another similar, yet less expensive option, is to contact your credit card carrier for a modest cash advance. Again, the interest rates might not be the lowest, but this time, you’re borrowing against your own credit limit and not some third-party payday provider. If the cash advance option seems too insurmountable to you, simply use your credit card for your holiday shopping, and avoid using it again until you’ve paid down your balance.
3. Withdraw from your emergency fund.
If the added interest of using your credit card is too much to deal with, you can always try taking just enough cash from your emergency fund to cover holiday shopping expenses. Since you act as your own lender here, this loan is entirely up to you to repay — but financial discipline is important. Let too much time go by, and you might never get around to replenishing what you borrowed, and you might not have enough money if a real emergency arises.
4. Ask your employer for an advance.
Your job might may permit you a cash advance taken from your next paycheck. It’s not a loan, so you won’t have to deal with interest or repayment since it’s money that you have 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 make a habit of asking for cash advances; taking frequent financial shortcuts could leave a bad impression with your employer. Request some holiday overtime; the extra hours can yield you some extra cash.
5. Sell, pawn or auction off unwanted belongings.
Now’s a better time than ever to sell some of those old things taking up space in your house. It could be anything from a used cell phone, to furniture, vintage clothing, appliances and more, a rich source of quick cash. Go the online route, like eBay, Amazon Marketplace or Craigslist. Visit some local pawn shops or thrift stores and see what kind of offer they’ll make for your items.
6. Reduce your spending.
In the spirit of the holidays, is there anything you can temporarily cut back on — or eliminate entirely — to gain some Christmas cash? Put your gym membership on hold for a month or two, cook at home more than eating out, and save on gas by taking public transportation. Aim to spend less disposable income on clothes and entertainment, since this is the season for buying those things for your friends and family. Some financial experts even suggest adjusting the tax withheld from your paycheck so you’ll have more cash available now versus later.
7. Open a holiday savings account.
This is not a source of “quick” money per se, but if you’re in a cash crunch this holiday, open a savings account designed to save money for holiday shopping. Your bank or credit union of choice might have its own version that can give you higher interest and generous deposit limits. Start now and have plenty of reserve money available by Christmas 2015, enough that finding an alternative source of cash won’t even be necessary.
Use these tips as a start and brainstorm some more ways you might be able to save money during the holidays. Asking a friend or family member to borrow money can be a good option during a financial crunch or crisis, but it’s not always recommended. Even if the money is repaid on time, borrowing from a parent or sibling and then using that money to purchase a gift for them isn’t very considerate. In this case, opt for a more economical gift, or express your creativity by making your own. They’ll appreciate your gesture more than money can ever buy.
Photo credit: Taber Andrew Bain