With COVID-19 restrictions winding down, there are a whole bunch of people itching to do a whole bunch of things that they’ve been denied for more than a year. Unfortunately, even with the new stimulus, tight budgets aren’t exactly a rarity.
Payday loans are tantalizing — quick cash with no credit checks or rummaging through tax returns like with a personal loan. It sounds too good to be true.
That’s because it is. About 12 million Americans take out these easily accessible unsecured personal loans every year, many of whom are struggling with monthly bills and personal expenses, according to Forbes. Many aren’t aware of the danger of 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 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 months or even 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.”
The good news is, there are better ways to get 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.
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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 post-COVID celebration 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 that means 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 on your employer. Request overtime instead — 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, or check out apps like OfferUp and Letgo.
6. Reduce your spending.
One of the good things to come out of COVID-19 is that many households reduced their spending. Some people cut their budgets out of necessity. Others lived with less due to work-from-home lifestyle changes. When the skies clear and life returns to semi-normal, resist the urge to fall back into pre-pandemic patterns. Aim to spend less on things like clothes, entertainment, and other disposable income purchases. If you put the difference aside, you won’t need a payday loan when disaster strikes. Some financial experts even suggest adjusting the tax withheld from your paycheck so you’ll have more cash available now versus later.
7. Save money with an app.
This is not a source of quick money, per se, but the right app can go a long way to making sure that you’re not desperate enough to consider a payday loan the next time an emergency finds its way to your doorstep. Acorns is the original roundup app — it rounds up every purchase you make to the next dollar and invests the difference. Chime has cool auto-save features and lets you get cash from your paycheck early. A good app and a little bit of 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 to the reporting for this article.
Last updated: Sept. 6, 2021