Avoid Payday Loans

If you’re in need of cash, payday loans can sound appealing. But they can be costly, so consider alternatives before applying.

Many charities and churches offer assistance for those in need. Credit counseling agencies also offer debt advice at low or no cost to borrowers. They may help you negotiate with your creditors to get a better interest rate or lower repayments.
What is a payday loan?
Payday lenders charge a high interest rate for short-term loans. They often require borrowers to post-date a check for their next payday or give the lender authorization to withdraw funds from their bank account. When the loan is due, the borrower must either bring in cash or write a new check for the full amount, plus fees. The CFPB estimates that the average payday loan has an APR of 391%.

Payday loan companies target low-income, minority families and members of the military who have few other credit options. Lenders do not run a credit report and do not help consumers build their credit. The CFPB reports that more than 80% of payday loans are rolled over and 20% end up in default, which goes on your credit report for seven years and prevents you from getting future loans.

Instead of using a payday loan, consider asking a friend or family member for help or seeking alternative sources of financing, such as a credit union loan or a personal loan from a bank. You should also speak with a financial counselor to learn about budgeting and saving.
How do payday loans work?
Many families struggle to manage expenses from week to week, especially those with sporadic or inconsistent income. They often look for loans to cover expenses between paychecks, but those loans come at a high cost to borrowers. Payday lenders rely on the fact that most consumers don’t know other options or can’t qualify for credit with better terms.

Payday loan lenders give people money in exchange for a postdated check or permission to withdraw funds from their bank account, and the borrower must agree to repay the loan on his or her next payday along with a fee. Most people who take out payday loans do so to cover recurring expenses, such as rent or utilities.

These loans are expensive, and they can trap borrowers in a cycle of debt. The Consumer Financial Protection Bureau has proposed rules that would require lenders to verify a borrower’s income, major financial obligations and borrowing history before making a payday loan.
Are payday loans a good option?
When it comes to payday loans, it’s best to avoid taking one out unless absolutely necessary. Instead, check with your bank to see if you are eligible for a personal loan with better rates and terms. You can also seek credit counseling, which is typically free of charge.

The majority of payday borrowers end up paying off the loans by rolling them over for another two weeks, adding up to a cycle of debt. This is not a good way to deal with unexpected expenses.

If you’re looking for a quick infusion of cash, consider using a "buy now, pay later" app that allows you to split your purchase into monthly installments at zero interest (Affirm, Klarna are examples). These apps are often easier to qualify for than traditional Payday Loans Calumet City loans and can help you manage your money responsibly.
Are payday loans a bad option?
Payday loans come with high fees and can quickly turn into a debt trap for borrowers. They also aren't required to consider a borrower's ability to repay, so it's possible that you could end up paying more in fees than what you originally borrowed. In addition, many lenders require you to give them Continuous Payment Authority (CPA), which allows them to withdraw funds from your bank account, whether there are enough funds or Payday Loans Calumet City not.

If you find yourself in a financial emergency, seek out a safer option. Some alternatives to payday loans include credit card balance transfers, borrowing from friends and family or getting a personal loan from a bank. You can also try contacting your creditors directly to work out a repayment plan or get credit counseling to help you develop a budget and save money. Then you can avoid getting stuck in a payday loan debt cycle altogether. Defaulting on a payday loan can result in aggressive collection efforts and appear on your credit report.