When you are considering an expensive advance loan to cover unforeseen expenses, you should first consider your other options. If an unexpected bill comes out ugly, you can withdraw one or more high-yield cash advances to make ends meet. These short term payday loans seem to be the only option available to you, especially if you have bad credit, but this is probably not the case. Instead of just using an expensive prepayment loan, you should explore all possible ways to cover these surprise costs. These four alternatives are a good place to start.
1. Friends and family.
Borrowing money for friends and family has many advantages over an expensive prepayment loan, but it certainly has disadvantages. The advantage: it’s a safe bet that you will pay a much lower interest rate for this loan than for prepayment loans with an average annual interest rate of 400%! You could even borrow this money without interest! But you shouldn’t trust it. The disadvantages are obvious. Failure to return this money may not affect your credit standing, but your relationship with someone near you may be irreparably affected. Unlike conventional loans, friends and family are more flexible with their payment dates. It is positive and can easily become negative. If you can borrow money from a friend or family member instead of asking for a loan in advance, we recommend that you and the other party set clear conditions before your money does not change hands. We even have a sample loan agreement that you can use to get these two conditions in writing.
2. Credit cards.
One of the reasons people choose prepayment is that they don’t have a credit card, or they’ve used up those that are already used up. People in these situations often have low credit scores that prevent them from purchasing a new card. However, if you have the option of debiting an emergency credit card instead of a prepayment loan, it means lower interest rates and more manageable payments. It is not a good option, but it is a better bad option.
With a payday prepayment loan, you have to pay it all in one: interest and principal. And if the promise to get out of debt quickly sounds good, the reality is different. According to a study by Pew Charitable Trusts, more than 80% of payday borrowers don’t have the money in their monthly budget to pay off their loans. This means that many borrowers can apply for a new loan or “extend” the original loan immediately after paying the old loan, thereby extending the maturity date against new interest charges. In any case, they could soon find themselves in a cycle of debt thieves.
Credit cards can also drag you into a cycle of debt, let’s be clear, but they allow you to pay a higher bill gradually and at a much lower interest rate. However, compared to cash loans, credit cards are a much cheaper option.
3. Installment loans.
Not all bad debts are short term. Some have longer repayment periods and an amortizing repayment structure where you repay the loan in a series of regular payments, just like regular personal loans! These are installment loans, and it’s worth taking a look at. Although it is difficult to make general statements between the different lenders, borrowers and local regulations governing these types of loans, the right loan for bad credit rates could be a much better option for you than a short term advance.
A good bad credit loan has lower interest rates than a payday cash advance or a title loan, and it also offers payments of a manageable size that fits your budget. So if you pay on time, you can increase your score. When you are considering a bad credit installment loan, check whether the lender is checking your repayment capacity or not. Although these loans are generally considered to be “without credit check” because lenders do not perform a strict credit check on your request, some lenders nevertheless exercise due diligence.
If all things are the same, the more a lender cares about your repayment capacity, the less likely you are to get a store or online loan that you simply cannot repay and you should never have contracted.
4. An emergency fund.
For people who already have to pay unexpected charges, this option will not be very useful. The objective of an emergency fund is to set it up and make it work before you need the extra money. That way you don’t have to worry about borrowing money!
For everyone, creating and maintaining a well-stocked emergency fund is the best alternative to a costly advance. The sooner you start building, the better. Experts generally recommend an emergency fund large enough to cover the cost of living for six months. That’s a lot of money! But instead of being overwhelmed, you just save as much money as possible, even if it’s only a few dollars a week.
