Question: Are there cheaper options to payday loans? I've gotten caught up with them in the past and just about ruined my credit, but finally got an extension and settled some and managed to get out of debt, except for paying off my credit cards. I can't borrow on any more on my credit cards, but I need a short-term loan. Is there anything less expensive than those check-cashing places? --Ben SLC
Answer: One option is a short-term installment loan, which you can pay back in several bi-weekly amounts rather than all at once. It's usually cheaper than extending a payday loan by just paying the minimum fees. Banks and credit unions offer installment loans, but if your credit is poor, there are also online lenders who specialize in helping those who've had credit problems in the past. All lenders are required by law to disclose all costs associated with borrowing before you accept the loan, so look closely and make sure such a source of funds actually will be cheaper.
Another option is overdraft protection through your bank. Like a payday loan, it should only be used rarely, and not relied on month after month, but if you have a good relationship with your bank, they may be willing to ignore past credit problems and offer overdraft protection.
Don't overlook the possibility of asking for a loan from someone you know or family members. People are often advised not to get involved in financial transactions with people close to them, for fear of losing a friendship, but if you pay the loan back on time as promised, you can avoid those problems and save money, as well as rewarding a friend with some extra interest that's more than they would have received otherwise, but less than a payday loan.
An employer may also be willing to offer an advance on your salary, if you just need the money a few days sooner than your regular pay.
Sometimes, if you explain your situation, creditors may be willing to work out a payment plan which will allow you to pay a debt in several installments. Many creditors would rather get their money over time than not at all, and they would rather you approach them to offer payments, rather than default on the debt and require them to try to collect it. Late fees or penalties may make this an expensive option, though, so compare it to the cost of other possibilities, including a short-term installment loan.
Credit unions are sometimes more forgiving than banks, if you have poor credit. If a bank won't offer a short-term loan, you may have better luck contacting a local credit union to see if they'll work with you.
There are other alternatives, such as car title loans and pawn shops, but they can be as expensive as payday loans. Furniture and appliance stores which offer financing are another option, if the loan is for a purchase, but avoid the temptation to buy something that's more expensive than you need or to shop where prices are higher just because the financing is attractive. Ideally, if you can put off a purchase until you can save up enough money to pay cash, that's the cheapest way to buy.
Once you've paid off your credit cards, your credit score should begin to rise, and when it does, borrowing will become easier and cheaper. That's the time to avoid getting in debt again, though. Work out a budget so you can set aside some money each month to gradually build up an emergency savings fund. Then you'll have cash when you need it, without having to borrow, and can pay yourself back after the emergency is taken care.
It's way too easy to get caught in a trap with payday loans. They sound cheap to begin with, but they become expensive fast. Any other option is better, especially a short-term installment loan where you're not forced to pay it back all at once, and the interest rates are lower. --Alger89