If you need money now but have bad or no credit, it is tempting to take out whatever loan offers you can possibly get. Your sources are limited, and payday loans may seem like a solution to your hardships.

However, this type of loan comes with risks that can make your current situation worse in the long run. Therefore, you need to carefully review other sources of financing before settling on the one that you think is best suited to you.

Drawbacks to Using a Payday Loan

Payday loans are easy to access, even if you have bad credit or an unstable income. However, they come with several drawbacks and can quickly turn into debt for many borrowers.

Costly Interest

Cost is one of the primary disadvantages of using a payday loan Filld. You typically will need to pay high startup fees as part of the application. These charges are additional add-ups for the interest you should pay each month.

APRs are also aggressively high on payday loans, often in the triple digits. This means you can end up paying far more than the principal amount. More than 58% of borrowers have difficulties paying monthly expenses, and payday loans often become long-term debt burdens to them.

Short Repayment Timeline

Payday loans are meant to be a short-term solution, as they typically come with a two to four-week payoff period. Therefore, they are expensive and unsustainable to consistently use.

According to the CFPB bureau, one out of every four payday loan borrowers has rolled over or re-borrowed due to a failure to repay their debt in full and on time. They end up getting nine or more short-term loans in a row, paying additional fees on the same credit with each new source of financing.

Alternatives to Payday Loans

Before you get a payday loan, rule out all of the alternatives. Even if you have less-than-perfect credit, there might be different ways to borrow.

PALs

Credit unions increasingly offer short-term sources of financing created to eliminate a payday loan or to pay off an existing one. They are known as payday alternative loans or PALs. Lower-cost PALs give a user more time to repay a loan than a regular payday loan does.

On average, PALs amounts range from $300 to $1,000, with the repayment timeline lasting up to one year. Generally, credit unions offer them APRs similar to that of credit cards, which is at around 15%. 

Cash Advances

A credit card cash advance can also provide an inexpensive way to borrow. The APR for a paycheck advance is lower than a payday loan and typically ranges from 18% to 30%. That said, the interest may be higher than the one for traditional purchases made on the same credit card.

Paycheck advances are also meant to be short-term, and if you are unable to repay your debt in a timely fashion, you could be charged late penalties. However, if you can pay off the principal quickly, a cash advance may help you get on solid ground.

Low-Interest Credit Cards

It is usually possible to qualify for a credit card despite having bad credit or no credit report https://filld.com/debit-card-loans/. An APR for your card will be considerably lower than the one for a payday loan.

If you are not sure whether you qualify for a low-interest credit card, try to pre-qualify to see what companies will offer you. Pre-qualifying doesn’t affect your credit and allows you to compare different offers.  

Family or Friends

Borrowing money from someone you trust can be a great way to avoid a toxic payday loan. In fact, a loan from a friend or family member often comes with no interest and payoff terms. Despite this, put your loan agreement in writing. The contract will help both parties to understand what to expect, including the interest being charged, the amount of money being borrowed, the repayment timeline, installments, and due dates. 

Local Organizations

Nonprofit organizations or government agencies may assist those in need as well. Go to the nearest department of Health and Human Services, your local Medicare office, or other nonprofits in your city to request available programs that could improve your current situation.

The Bottom Line

All these alternatives discussed above are valid for one-time emergencies. However, if you are constantly finding yourself in desperate need of money, you should thoroughly review your day-to-day spending and manage it if you can. Creating an emergency fund will help you to deal with any short-term financial hardships that life throws your way.