When unexpected costs arise, and one has no savings to respond, it may seem attractive to borrow a payday loan. In the United States, that mechanism offers quick cash and are very easy to get for people who have a job.

However, a payday loan is the most costly way to get money borrowed. For example; If you take out a loan of this type to buy a new car battery and you can not repay it on time, you could end up paying more in charges than you paid for the same battery.

Before you take that route, try to understand why you should avoid this type of loan and learn more about the alternatives offered.

HIGH PRICE

Payday loans are small and short-term loans that are easily obtained because the lender rarely checks the borrower's credit. You write a check for the amount you want plus the charge the lender charges or give the lender permission to automatically withdraw money from your bank account after you receive your next paycheck.

The accusations that these banks charge are high, typically 15 dollars for every 100 dollar that is borrowed. When the agreed date arrives, you can let the lender cover the loan, or the debt can be extended, dilating the payment in exchange for more charges.

Here's the problem: High costs charged by lenders raise the effective interest rate to an extreme level. A fee of 15 dollars to borrow $ 100 may seem like an interest rate of 15%. In fact, due to the short term of the loan, it is equivalent to an annual rate of 390% - more than 10 times the typical rate for a cash advance of a credit card, which is a costly option.

ALTERNATIVES FOR PAYMENT DAY LOANS

There are many and better options that payday loans - in addition to others that can be worse. The following strategies are some alternatives for going through a financial emergency.

Personal Loans: Unsecured loans - or "personal loans" - from banks and credit associations are preferable to those with access to this class of lenders. These typically come with a fixed interest rate and require the borrower to repay the debt with a fixed monthly repayment program. Financial companies offer similar products, called installment loans.

"Traditional term loans are the best alternative to payday loans for consumers because they offer a clear path to get rid of your debts through equal monthly payments that are manageable," says Karen Klugh, a spokeswoman for the American Association Of Financial Services, an industrial group.

Term loans also offer you much more time to pay off debt. This funding usually allows you to borrow more money at a considerably lower cost than payday loans.

Paycheck Advance: Ask your employer for a prepayment of your salary, which usually does not cost you anything. Some companies also offer low-cost loans to workers who are going through a crisis. If you have been a good employee for several years, this can be an excellent choice.

Indulgence of Accounts: Look for non-interest-bearing creditors, such as utilities or cable-television companies, and find out if they accept late payments. Use whatever money you have left for not paying those bills, for your needs in case of an emergency. People who already have outstanding loans can ask for modifications to their debts to help them increase more money flow.

Short Term Advancement Account: Some banks and credit associations offer short term cash advances as an alternative to the payday loan. While the costs are not so high, they can still be quite expensive. By law, credit associations can not charge more than 28% of the annual percentage rate on small loans at short installments so they may be more reasonable than banks.

Church-backed loans: Some churches now offer members who are faced with small financial crisis loans at quite low rates. Find out if your parish or temple offers small loans for emergencies.

IN CONCLUSION

If your only option is to borrow, a personal or term loan is preferable to many of the other options, although a good credit history is needed. Those with a poor track record should consider all other alternatives before choosing the payday loan and risk falling into a vicious circle of debt.

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This article was written primarily for US consumers to aid in their personal financial decisions. It may be that some advice or statements do not apply to readers in other countries.