You’ve seen the commercials – Pay Day Loans. They seem innocent enough, so helpful and the people seem so happy holding up their new found money. In truth though, they are a credit risk landing you in financial trouble and can even prohibit you from obtaining a loan.
According to a recent article in the Wall Street Journal, Oklahoma has the highest percentage of residents who have used a “Pay Day Loan’ within the last 5 years. There are more of these storefronts than McDonalds, Wal-Mart and QuickTrips COMBINED and their business IS churning out loans purely based on paychecks with HUGE payback interest and fees. Oklahoma is a state which prohibits Lenders issuing a loan to a borrower with more than ONE outstanding pay day loan. If you start the pay day loan cycle, it could ruin you financially for a long long time.
"A payday loan doesn't solve a financial crisis; it creates one," says Uriah King, senior policy associate at the Center for Responsible Lending in Durham, N.C. "The typical payday borrower ends up in a debt trap because they have to go back and get another payday loan to help repay the first one, then another, then another."
So, if you are a little strapped, but need a little help, where can you get money?
Credit Union Loans
Credit Unions originated out of the Great Depression of the 1930’s. They are nonprofit organizations made to help people out with short-term financing. Though not all offer short-term loan programs, many do – just ask.
Before agreeing to a short-term loan, make sure you understand the fees and all the time limits of paying it back.
Search here for a Credit Union near you.
Small Bank Loans
p class="MsoNormal" style="line-height: normal;">The Federal Deposit Insurance Corp., or FDIC, launched its Small-Dollar Loan Pilot Program, a two-year case study designed to illustrate how banks can profitably offer affordable small-dollar loans as an alternative to high-cost financial products, such as payday loans.
While the small-dollar loans offered by banks include the same relaxed credit standards as traditional payday loans, they have a lower interest rate and no closing fees or hidden costs such as prepayment penalties.
Some of the program also requires the borrower to deposit 5 percent of their borrowings into a savings account to hopefully help them begin a savings plan. Financial education is also provided to make sure loan officers go over at account opening,
To see which small banks offering this Pilot Program in your area, click here.
Credit Counseling
Though, not a great option if you need money right now, it is an option to help you find better ways of handling your financial situation so you won’t end up in financial dire straights to begin with.
Other options
There are sometimes you just need the money now. Then what are your options?
- Family or friends. You may even consider offering to pay some of the money back through bartering or providing services such as cooking meals or doing yard work.
- Negotiate with creditors. One of the cheapest ways to stretch cash further is to work out a payment plan with your creditors. If you communicate with some of your creditors, you may find out they are easier to work with than a Pay Day Loan.
- Getting a cash advance from a credit card. Paying 25% to 30% interest rate is a far cry from paying 300% to 500% interest on a payday loan. And there aren’t processing / application fees.
If you are thinking about purchasing a home in the future, you have to keep in mind what your credit history looks like before you make any knee-jerk reactions. Life happens, but it doesn’t have to ruin what you are wanting to do in your future.
If you would like more information or other tips about financing, buying or listing your home, contact us today. We’re here to help!
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