August 8, 2019
Your next paycheck is right around the corner, but you’re having trouble keeping your balance above $0. You’re stressed, worried, and desperate for some quick cash… If this has been you, no doubt you’ve heard of payday loans. These loans often seem like the best option but they come with expensive fees and can affect your credit score. They make it sound so easy: apply and get approved, then you have cash readily available! Unfortunately, it’s not as easy as it may seem payday loans have extremely high interest rates and fees. There must be another way!
What are Payday Loans?
A payday loan is a relatively small amount of money, typically a few hundred dollars, lent with the expectation that they will be paid back with the borrower’s next paycheck. To take one out, you head over to your local payday lender or visit an online lender’s website. You will need to apply, for a fee. If you are approved, the money will be deposited directly into your bank account. Then, you will pay back the loan plus interest on or after your next payday.
Payday Loan Requirements
Before you’re approved to take out payday loans, there are many requirements you must meet. First of all, you must have a sufficient and a steady income. Payday lenders may not trust you to pay back if your income isn’t consistent. Additionally, many lenders check credit, and those that don’t have higher interest rates. Your credit score is reported by credit agencies such as FICO. FICO reports credit score out of 850, with a score above 750 considered excellent and a score below 580 considered bad. Next, you must have an active bank account and valid phone number. Lastly, you must be 18 years old and reside in the state where you hope to take out the loan. Do you meet the payday loan requirements? If you do and you’re considering taking out a payday loan, read on before.
Why Payday Loans are Harmful
It’s for a reason that payday loans are illegal in 14 states. First of all, APRs are extremely high, sometimes reaching 400%! With this kind of APR, it wouldn’t be surprising that you pay more in interest and fees than the initial loan amount. Common fees associated with payday loans include:
Application Fees
Lenders, online and in-person, typically charge a fee to simply apply.
NSF Fees
If the lender attempts to recover funds but you don’t have enough money in your account, your bank or credit union may charge an NSF fee, typically around $35.
Late Fees
In addition to an NSF fee, the payday lender will charge you a late fee. Lenders like to be repaid on time, so find a way to punish those who don’t meet their deadline.
Rollover Fees
Rollover fees occur if you attempt to extend the deadline of your loan. The interest can increase if you do this, plus the rollover fee that varies by lender.
Even though fees and high interest rates are enough reason to stay away from payday lenders, they aren’t even the worst part. The most harmful, immoral, and destructive practice of payday lenders is the concept of rollovers. Say you take out your first payday loan. If you can’t pay it back on time, the lender will extend the deadline but increase interest and fees. You are essentially “rolling over” your debt. If you couldn’t pay back the first loan, good luck paying back the second. It just gets harder and harder to pay back, and unless you get super lucky and say, win the lottery, you may never escape the cycle of debt.
“The most harmful, immoral, and destructive practice of payday lenders is the concept of rollovers.”
Alternatives That May Seem Attractive but are Not
Although these options seem like good alternatives to payday loans, just because they’re better doesn’t mean their ideal. Debt can be a slippery slope so use caution and wisdom when searching for alternatives.
Pawn Shop Loans
Have a few expensive items in your attic? A pawn shop loan will allow you to exchange this item for a loan, and once you pay back the loan you will get the item back. The amount of time you’ll have to repay varies by state. An alternative is selling your items on resale-friendly sites such as Ebay and Psohmark.
Title Loans
If you are a vehicle owner, you can take out a loan based off a percentage of your vehicle. Similar to pawn shop loans, your vehicle could be repossessed if you don’t pay back on time. Losing your car is not a good idea in the long run as many people use their vehicles to get to work.
Payday Alternative Loans
These loans have interest rates capped at 28%. They are essentially payday loans, but they’re not ideal if you need frequent cash quickly before your paycheck; loans can have repayment periods of months. A payday loan by a different name with the same predatory fees and high rollover rates.
Cash Advances
Cash advances are an option for those with a credit card. You can get money quickly from an ATM or financial institution, but interest rates are high.
Easy, Fast, and Reliable Option
Brigit’s mission is to free people in the United States from the harmful cycle of payday lenders and predatory bank fees. Just download the app on your smartphone, and you could be approved for an advance of up to $250 with no credit check or interest!
