Although payday cash advances are a great way to borrow money quickly, they can be expensive, especially if you have bad credit or are living on a tight budget. Fortunately, there are other ways to borrow money, including borrowing from friends and family. If you have good relationships with these people and have clearly defined expectations, you can ask them for financial assistance.
Alternatives to payday loans
Whether you live paycheck to paycheck or find yourself in financial emergencies, there are many alternatives to payday loans. There are also nonprofit organizations that can help you avoid the cycle of debt. NerdWallet has vetted several of these organizations for their financial education and alternative loan programs. These nonprofits offer help in preventing debt by educating consumers on financial education and debt prevention.
A local credit union may be a viable alternative to payday loans. The amount available is often smaller, and repayment terms are usually a few months. A small credit union may be able to fund your loan within a few days, but it may take longer if you are not a member. It is also important to keep in mind that if you are unable to pay, your credit union will report the late payment to the credit bureaus, which can affect your credit score.
Interest rates
While payday cash advances are convenient for the moment, they come with extremely high interest rates. It is wise to borrow only when you absolutely need to and only for a short period of time. Payday loans are often difficult to repay and can create a vicious cycle of debt. Using these loans should only be done when you really need the money and are able to pay them back on time.
The interest rates on payday loans can be as high as 400% when they are viewed annually. Many lenders have withdrawn from states where they are regulated. Fortunately, the federal Office of the Comptroller of the Currency (OCC) has recently announced that banks will now be able to write loans less than $5,000 without standard underwriting rules. The goal is to increase bank lending to people with poor credit.
Fees
Fees for payday loans vary from lender to lender, but they are always added to the principal loan amount. Most lenders charge a small application fee, and some require a background check. Others charge origination fees, which are either a flat rate or a percentage of the loan amount. Origination fees help cover the costs of processing and maintaining the loan.
Fees for payday cash loans are rarely disclosed in advance, making it difficult to determine the true costs. However, lenders present the terms as an annual percentage rate (APR), which includes the interest rate and other fees. These fees can add up very quickly. Moreover, payday loans are often rolled over, meaning borrowers end up paying multiple times for the same amount. A recent study by Pew Charitable Trusts found that, on average, borrowers took five months to repay their loans. A majority of these borrowers had finance fees that exceeded their original loan amount.
State regulations
The State of Missouri has strict regulations in place to regulate the payday cash industry. The State Consumer Credit Section is required to publish a report on payday lenders every two years. In addition, the law does not allow lenders to charge any fees for deferred deposit transactions. It also prohibits lenders from accepting checks that are held for more than 31 days, and limits the number of payday loans a borrower may take.
While payday lending is legal in 36 states, some states have made the industry more expensive for consumers by limiting their interest rates. In 2009, for example, voters in New Hampshire capped payday loans at 36 percent, followed by other states. In 2010, the state passed a ballot initiative that barred lenders from charging over 40 percent interest. In 2018, voters in Colorado and South Dakota passed a ballot initiative that limited the interest rate to 36%, while in 2008, Arizona voters rejected a ballot initiative prohibiting payday loans altogether.
