If you’re struggling to pay your bills, knowing you’re not alone is no comfort. The federal minimum wage remains at $7.25 an hour, a figure set in 2009. The highest local minimum wage in the country is in the District of Columbia, which mandates $17 an hour. That sounds great, unless you consider that in 2022 the living wage was estimated to be $25 an hour for a family of four with two working adults, and the average hourly wage for workers in the states -United States is only 11.21 dollars.
It’s no wonder why so many people find themselves scrambling for cash and considering payday loans. Payday loans have some superficial benefits for busy, exhausted people: They’re convenient, quick, and offer small loan amounts that seem manageable in the short term. The problem is, they’re also predatory: Some payday loans have annual percentage rates (APRs) as high as 652 percent, many offered by Native American tribes that are not required to follow federal law regarding the terms of their ready. Even borrowing a small amount through a payday loan can quickly turn into unsustainable debt that pushes you to borrow more just to stay afloat.
If you need money quickly and are considering a payday loan, don’t do it. Instead, look for one of these safer alternatives.
Alternative Payday Loans
If you need short-term loans, it may be time to join a credit union. These organizations are member-owned and operated on a nonprofit basis, and credit unions that are part of the National Credit Union Administration (NCUA) offer a great option called a Payday Alternative Loan (PAL). There are two types of PAL (PAL I and PAL II); the latter is your best option if you are not already a member of a credit union, because you are eligible as soon as you join (for a PAL I loan, you must have been a member for at least one month).
PAL loans finance between $200 and $2,000 and charge a maximum origination fee of $20 (some credit unions may not charge a fee at all), with terms ranging from one month to one year. The APR will vary depending on your credit, but will not exceed 28%. A 28% APR isn’t great, sure, but it’s a lot better than 652%. Members can take out three PAL I loans in a six-month period, but can take out as many PAL II loans as needed, provided they qualify.
Bank credit
If you can’t find a credit union in your area, check to see if local banks offer bad credit loans or small dollar loans:
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Bad Credit Loans are exactly what they sound like: loans designed for people with terrible credit. The APRs on these loans will be high (up to 35.99%), but not as astronomical as a payday loan, and they will finance as little as $300 in some cases. Keep in mind that these loans may have other fees and that some predatory lenders offer similar personal loans. Only consider this option with an established, reputable bank.
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Small dollar loans are ordinary bank loans, but they are granted for much smaller amounts than traditional personal loans. For example, Wells Fargo offers its existing customers a flexible loan of up to $500 for a lump sum, repaid over four months, and US Bank allows its customers to borrow between $100 and $1,000 for a lump sum. of $6 for every $100 borrowed, repaid over three months. month. It may be worth checking to see if your bank offers a small amount loan, as this is a much cheaper option than a payday loan.
Peer-to-peer lending
Peer-to-peer (P2P) loans are funded by investors and are generally easier to obtain than bank loans, although they often charge an origination fee, just like a bank. Lending Club is a popular P2P lender that offers loans as small as $1,000 at rates up to 35.99%.
Lending circles are another form of P2P lending to consider, although they can take longer to obtain and therefore might not be suitable for emergencies. A lending circle is a private group that contributes money to a fund and then offers either zero-interest loans or regular payments to its members. Membership has a regular cost and you must already be a member to access loans from a lender circle, but it can be a good alternative if you have a regular need for small loans.
Salary advance
Finally, you might consider asking your employer for a small advance on your salary. However, you should avoid salary apps like DailyPay or EarnIn (which some employers already offer as a “perk”). These types of loans have some of the same disadvantages as payday loans: they can trap you in a bad cycle where you’re always a little short on your bills and constantly borrowing more, and they charge fees and can lead to overdrafts. on your accounts. If your employer offers advances at no cost (or for a nominal fee), this may meet a one-time emergency need, as long as you plan for the small paycheck that awaits you so you don’t have to borrow again.