If you need fast money, you may be considering taking a payday loan. Since it is given to those with poor credit and no savings, many students end up taking it. However, before you make a rash decision, understand that payday loans aren’t as good as they look. As much as it’s easy to get them, it’s so difficult and painful to get out of them.
Payday loans often charge very high-interest rates. Therefore, they can easily lead you into a cycle of debt and poverty. Worse is that those who don’t pay off can face severe financial consequences. But, there are ways you can avoid getting into these loans. We will share with you some steps you can take to ensure that you’re not trapped by payday loans. But first, let’s understand what a payday loan is in the first place.
It’s simply a short-term loan given by payday lenders to be repaid within few weeks. It’s suitable for people who need fast cash since you can complete the application within minutes. And the verification is fast. Once your application is approved, you’ll get the funds into your account. You’ll then sign a postdated check in payment of the loan and the interest rate that a lender charges.
Now, the main reason why you should avoid payday loans is that they have a very high-interest rate. Thus, you’ll end up paying much more money than you borrowed. But, they also include many expensive fees and hidden costs, which can increase the amount you pay. And also, the postdated check you sign allows the lender to withdraw money from your account on the scheduled date whether or not you are able to pay.
Ways to Avoid the Payday Loan Trap as a Student
Now, that we understand what loans are and why they are terrible, you should ensure that you’ve exhausted all your financing options before taking this payday loan for students. Here are some tips to help you;
1. Check for Payday Loan Alternatives before Getting One
Payday Alternative Loans (PALs) are hybrid of traditional payday loans and personal loans. They usually range from $200-$1000 and can be re-payed within 1-6 months. These loans are offered by some credit unions and you can be charged an application fee of $20. However, to get a PAL, you must be a member of that credit union for not less than a month.
Payday Alternative Loans have several advantages. One is that their interest rates are lower than traditional payday loans, usually a maximum of 28%. And, their payment term is much longer, allowing you to plan your finances well.
Plus, since unions report PALs to credit bureaus, if you repay your loan successfully, it can improve your credit.
2. Ask a Family Member or Your Partner to Help You with the Early Repayment
You should completely avoid payday loans. However, if you have or must take one, try making an early repayment as much as possible. Note that with payday loans, you give the lender the right to withdraw money from your account on the set date. And if you don’t have enough of it at that time, your bank can charge you overdraft fees. Plus, many people aren’t able to pay off their payday loans on time. As such, they choose to renew or roll over by paying a fee to extend their due date. Therefore, you end up paying much more money than you originally owed, which gets you into a payday loan debt cycle.
It’s why you should try as much as you can to pay the debt on time or even before the payment date if possible. If you have someone who can help you pay it off early or on time, like a friend or family member, ask them for help. Even if they will loan you the money, it’ll be better to owe them than a payday loan lender.
3. Consider a Personal Loan, Which May Be Better in Your Situation
If you need more money than what a payday loan alternative is offering, a personal loan might be a viable option. Personal loans come with a lower interest compared to payday loans and a maximum APR of 36%. Plus you can repay these loans at a fixed monthly payment within 1-5 years, which gives you some financial freedom.
You can get a personal loan of between $5000-$50000, depending on your credit history. And since different lenders offer personal loans, we recommend applying with several of them to determine who charges the lowest interest rates.
Now, besides taking a PAL, a personal loan, or borrowing from a friend, you can still resort to other less costly options, including;
- Talking to the provider- if you want a loan to pay for bill utilities, for instance, you can speak to your provider first and see if you can work a favorable solution with them.
- Call your university- you may get some financial aid depending on your college. Get in touch with your university to find out whether they have such a program.
But, if you have to borrow a loan, whether PALs or personal loans, please borrow little money to avoid repaying high amounts. Go through all your options and pick the least expensive one.
Payday loans can easily trap someone in a debt cycle. Even if it seems like you don’t have any other choice, don’t be quick to take them. Instead, consider the other options that we’ve written above. And if you have already taken one, try as much as possible to repay on time.