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How to Avoid Payday Loans

How to Avoid Payday Loans

How to Avoid Payday Loans

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People take out loans for a large number of reasons, whether it's a medical emergency or simply a small boost to help with living expenses between pay periods. While everyone would appreciate the luxury of a savings account, this is sadly not a realistic possibility for many Americans. Statistics show that in 2020 nearly 70% of Americans have less than $1000 reserved in a savings account. The typical American is just one financial emergency away from being in a rough position. This is partially why payday loans have become so popular over time. 
 
In this article, we’ll discuss payday loans, some of the pros and cons of payday loans, as well as navigating how to avoid payday loans to avoid borrowers getting into a rougher financial position. With this helpful guide, borrowers can review their loan options with transparency and strong understanding. 


What are Payday Loans?

Before we can understand how to avoid payday loans, we must understand how to identify them. Payday loans are short-term loans where the lender provides credit to borrowers with high-level interest rates attached. They’re known as payday loans because the balance is expected to be paid off within 2-4 weeks or when the borrower receives their next paycheck. Unlike other loan types, payday loans are usually not paid off over time but rather in a lump sum once the borrower has the funds to repay the loan. 
 
While loan limits will vary by state, payday loans are usually smaller loans. The average payday loan limit is $500. If the borrower is unable to pay off the loan within the agreed-upon time the loan is rolled over to the next payment period for an additional finance charge with the same interest rate. While fast funding is nice to many borrowers, payday loans are an incredibly high-risk financial maneuver. 


Pros and Cons of Payday Loans

While it might be simple to claim that payday loans should be avoided altogether, there are reasons why the payday industry has thrived for as long as it has. While the advantages might outweigh the risks involved with payday loans, understanding the pros and cons of payday loans can help borrowers understand their options.
 

Payday Loans Pros

While the payday loan industry is often viewed as predatory, there are many scenarios in which a payday loan might be the only option. Let’s explore some of the most beneficial advantages of payday loans.
  • Great for Bad Credit: While most of the time lenders will require a hard credit check for borrowers to determine loan eligibility, payday loans do not. Borrowers only need to have a valid ID, phone number, bank account, and be 18 years of age or older. 
  • Fast Funding: The process of vetting applicants for loan eligibility can take some time. With payday loans, borrowers can anticipate receiving their loan within 24 hours of applying with a payday loan service. 
  • Accessible: Payday loans are incredibly accessible, not only in their credit requirements but in their exposure. There has been an increase in online payday loan services so borrowers can get approved for a payday loan from the comfort of their own homes. 


Payday Loans Cons

After looking into some of the advantages of choosing to apply for a payday loan it’s normal for Now that we understand payday loans and how to avoid them, let’s explore some of the most common questions borrowers ask about payday loans. Some of the most common payday loan questions include: 

How Do Payday Loans Impact Credit?
Payday loans are a great option for borrowers with bad or non-existing credit but can also worsen an already unfortunate situation. Payday loan borrowers are often returning customers due to the concern of repayment. While applying for a payday loan may not impact your credit score, being sent to collections certainly does, and payday loan merchants will have enough information to jeopardize an already low credit score. 

What Do I Do If I Already Have Payday Loan Debt?
The main goal for anyone in payday loan debt is to look outside of payday loan merchants for solutions. Looking into resources outside of a payday loan service is valuable, whether by talking to an employer, local church, or family and friends for assistance with repayment. Before allowing payment to go past due, make sure to discuss options with the lender for repayment plans or possible extensions. Proactivity is crucial for getting out of any credit debt cycle.
 

Avoid Payday Loans with SAIL Loans! 

Financial instability is never a great position to be stuck within. While payday loans might seem like a fast and easy way to get your hands on money quickly, there are better and less-risky options out there. SAIL Loans seeks to simplify the process of applying and getting approved for a loan online or in-person. With our simple application and expedited approval process, getting approved for a loan has never been safer or easier. Contact SAIL Loans today to review your options!

While the accessibility of payday loans is an attractive selling point for borrowers, the disadvantages of payday loans are hidden within the fine print of a loan agreement. Here are a few of the biggest cons of payday loans. 
  • Astronomical Interest Rates: While borrowers interested in payday loans are often strapped for cash, payday loans can be one of the most expensive ways to receive a loan. Each payday service will feature unique interest rates for loans, but the annual percentage rate for payday loans can be extremely high.
  • High-Risk: Due to their high interest rates, payday loans can be considered a risky move for borrowers who are even slightly hesitant about their ability to pay off the loan. The interest on these loans can result in a cycle of debt for borrowers who cannot pay. What might have been a $100 loan initially can turn into a $1000 loan incredibly quickly if borrowers cannot pay.
  • Predatory Practices: If a borrower is in a position where they need a small amount of money to sustain themselves, they are likely already financially struggling. Payday loan merchants do not lose money if the borrower doesn't pay off the loan but the borrower does. The lack of credit checks and accessibility is appealing to those who need money but can trap those already in a tough financial place. 


How to Avoid Payday Loans

Now that we’ve reviewed some of the pros and cons of payday loans, let’s dive into how to avoid needing to apply for one. There are many alternatives to payday loans designed to protect both borrowers and lenders. Additionally, there are a few financial strategies that can help financially-struggling individuals get back on their feet and avoid payday loans entirely. Let’s explore a few of these payday loan alternatives and tactics for avoiding payday loans. 
 

Apply for a Personal Loan

While many lenders will require a hard credit check, a poor credit score isn't a death sentence for borrowers needing a smaller loan. Many loan services are willing to work with interested borrowers with poor credit, especially for those willing to provide collateral for a secured loan. 
 

Borrow from a Credit Card

Payday loans are an expensive method for borrowing money. This is not only due to their insane interest rates but because other options are often cheaper. Borrowers with a credit card that know they can pay off their balance soon should consider a credit card cash advance. While many cards might charge interest on cash advances, the interest rate is likely still lower than the interest rates affiliated with payday loans. 
 

Research Local Resources

If a bank has yet to approve an application for a loan, a credit union is also a valuable option. Many credit unions are willing to provide funds to those with bad credit, but borrowers will need to qualify to become a member. Additionally, many online loan providers exist to help those with fair or poor credit. Always remember to read the fine print and understand interest before moving forward.
 

Avoid Payday Loans with SAIL Loans! 

Financial instability is never a great position to be stuck within. While payday loans might seem like a fast and easy way to get your hands on money quickly, there are better and less-risky options out there. SAIL Loans seeks to simplify the process of applying and getting approved for a loan online or in-person. With our simple application and expedited approval process, getting approved for a loan has never been safer or easier. Contact SAIL Loans today to review your options!
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