Let’s say you’re reaching the end of the month, and you’ve run into some unprecedented expense. This could be a medical bill that needs immediate attention, a car repair, or any unavoidable expense that puts strain on expenditure for that month. This might be a tempting situation to draw on a payday loan so that you can sustain your expenses till you get your next salary. Now, what exactly is a payday loan? In this article, I will explain to you the ways in which you can avoid taking on this loan and give you some alternatives.
This is a non-traditional short-term loan that you can get from lenders outside of banking spaces. These are usually smaller amounts that you can get for a really short period of time and can have high interest rates. In other words, this is an “advance,” immediate cash. It is usually an unsure loan that gets you the money instantly. The money that is lent to you depends on your monthly salary, and you are supposed to pay it back next month. However, being very high-interest, they can have an adverse impact on your credit consolidation in the long haul.
I always advise that unless you are sure that you will be able to repay your loan the next month on that high interest basis, never take on this sort of debt. Payday loans have a very high annual percentage rate, which makes them very ripe for making people fall into a debt cycle. This can lead to more financial hardships in the long run as a result of the harsh repayment conditions.
What alternatives should you try instead?
So you have an unavoidable expense that needs immediate cash, but you don’t want to risk a payday loan. What options do you have?
Personal loans: these are arguably one of the most flexible types of loans you can take on. They don’t require any additional collateral and have low interest rates. However, like any other loan, how low your APR gets depends on your credit score. That’s why it is good practice to keep these scores high. The biggest advantage of these types of loans is that you can draw them for any purpose. This can be for your education, any medical bills, etc., and you can pay it back through an EMI.
Ask a family or friend: If possible, you can also consider drawing on a loan from a close family or acquaintance.This is one of the safest ways to fund your emergency expenses without the added burden of potentially high APRs and falling into a debt cycle. If this works out, you can negotiate a comfortable repayment plan with your lender.
Borrow from your credit card: if you have remaining credit on your credit card, you can draw on it to get the money immediately. However, before opting for this, it is always wise to look at the interest rates you’ll have to pay.
Parting Words
In this article, I discussed what a payday loan does and how you can prevent yourself from having to draw on it and fall into a debt cycle. As I mentioned earlier, these types of loans can be quite precarious, with unusually high APR.
Instead, a personal loan seems to be the best option if you don’t have other savings, family members, or friends to provide for you. Hopefully, with this information and perspective, you will feel empowered to make decisions that will suit you in the long term in your financial journey.
