Alternatives

Cash advances and payday loans provide quick cash to customers who need it, but they are not always the best choice. The guide below reveals four alternatives to payday loans and how to determine which option is best for you.

I Need a Personal Loan Not a Payday Loan

The overwhelming number of loan products being advertised today is confusing. Too many consumers misunderstand the difference between payday loans and personal loans, and they subsequently enter unaffordable contracts because they believe the two loan choices are the same. By reviewing the details below, you can learn how to get out of payday loans.

Payday Loans

A payday loan is a short-term loan contract between one borrower and one lender. The agreement may be presented as a cash advance, in which money is provided now in exchange for repayment later; as a check cashing service, in which extra cash is lent now in exchange for a post-dated check for the principal amount plus fees; or as a traditional payday or paycheck loan, in which money is funded upfront and deducted through an electronic funds transfer on the recipient’s next payday.

However the agreement is designed, it typically lasts for only one to four weeks before the full amount must be repaid. Payday loan lenders rarely conduct credit checks, so their approval decisions are mainly based on a person’s income and past cash advance history.

Personal Loans Not Payday Loans

In contrast, personal loans are designed for longer-term financial needs and may even permit co-signers to help with approval. Credit checks are conducted for new borrowers, and only individuals who meet the minimum requirements are eligible for loan products. Common versions of personal loans are car loans, lines of credit, and mortgages. These loans may be secured by collateral or unsecured.

Secured Loans

Secured loans are potentially the most difficult money to obtain, but they also tend to offer the lowest interest rates and the longest repayment terms. These loans are arguably the most effective solution for someone with too many payday loans because secured loans can be repaid over a period of up to 30 years. These loans typically require a good credit score and ownership of a home with a minimal level of equity. A home refinance is a way to pay off the existing home loan, take out a new loan while cashing out a portion of the equity, and use the extra cash to get out of payday loan debt, take vacations, buy a new car, or anything else the borrower wants to do.

Unsecured Personal Loans

Unsecured loans are the most common form of non payday loans. They are not backed by any kind of collateral, so they have higher APRs and shorter repayment periods than secured loans. Most unsecured loans are granted for under $5,000 and must be repaid within five years, making them an ideal option for paying down debts and ending up with no payday loans. Borrowers with bad credit can still take out a loan, but the interest charges increase to offset the lender’s additional risk.

Debt Consolidation Loans

Debt consolidation loans are a special type of unsecured personal loan used to combine several outstanding debts into a single monthly payment. In some cases, consolidation loans are easier to obtain than regular unsecured loans because a person is lumping together existing debts instead of incurring a new debt. Debt consolidation loans are often used for paying off payday loans, credit cards, and other small debts.

Credit Card Cash Advances

A credit card cash advance is not a payday loan. Instead, it is a way for a credit card company to let you borrow against your credit limit without needing to make a store purchase. For these cash advance transactions, borrowers usually pay an upfront fee, such as 4% of the advance, and then make minimum payments on the balance. Credit card cash advances accumulate interest until they are paid off; they do not have a predetermined end date like secured and unsecured personal loans. Credit card cash advances are often better than a payday loan because they have lower annualized interest rates, can be repaid over many months, and are simple to access for existing credit card holders.

How to pay off payday loans is a genuine concern, and the answer requires taking action on the tips above. Virtually every person has access to loans to pay off payday loans. These payday loan alternatives frequently carry lower interest rates, which limits extra money spent over the life of the loan, and longer repayment terms, which provide breathing room in case of an unexpected financial emergency. Credit card advances, debt consolidation loans, unsecured loans, and secured personal loans are effective ways to stop payday loans debt and recover your financial security.