If you urgently need a financial boost to tide you over, payday loans can start to look tempting. However, with their extremely high interest rates they can quickly become a problem debt. Many people who take out payday loans as a short term measure find they have trouble paying them off. When this happens, interest rates of over 1000% APR (or equivalent in fees) can have plenty of time to bite.
If you are in a difficult situation but want to avoid payday loan debt, there are a number of lower-cost alternatives you might wish to consider.
A Word of Caution
You should think carefully about any sort of credit, and consider all your options before taking on debt. Make sure you know how you are going to pay back, and are confident you will be able to do so. However, as long as you properly consider your situation, these alternatives can prove far more manageable than payday loans.
If you speak to your bank, they may be able to arrange an overdraft on your account to help tide you over. Banks vary quite widely in how they manage overdrafts, but interest rates should certainly be much lower than on a payday loan. Some bank accounts come with attractive overdraft rates or even a small interest-free “buffer” as perks to attract customers.
If you have a credit card, you may be able to obtain a temporary increase on your card’s limit if you talk to your credit provider. However, this is definitely an option for those who already know how they will be able to promptly pay back the debt. While credit cards are more affordable than payday loans, they can still be expensive and problematic if debt is allowed to linger. Nonetheless, if you know that you will be able to repay the full amount on time, this is usually decidedly preferable to payday lending.
Credit Unions have been in the news for a while, with prominent figures who are critical of payday loans touting them as an alternative. These are community-based non-profits, giving members access to loans as well as to current and savings accounts. Loans from a credit union tend to be both more accessible than a bank and more affordable than a payday loan.
This type of lending can be a huge help to those who find themselves in a very tight spot indeed. If you have been claiming working age benefits for 26 weeks or more and are lacking money for essentials, then you might be eligible for a budgeting loan. This is designed to cover the cost of things like rent, food, clothes and furniture. It is interest free, paid directly to your bank account, and will usually have a repayment period of two years.