Pitfalls With Payday Loans And Alternative Financing Facts Free ...

It is a well-known fact that payday loans are quite expensive. Lenders charge an interest rate of up to several hundred percent. For instance, borrowing $100 may cost you $20 in fees over a period of just two weeks. This may not look like much, but what if you borrow $1,000? On average, you will pay at an annual percentage rate of around 430 percent.

The problem with this type of loans is that they do not help borrowers deal with the main problem. If you have financial problems, taking out a payday loan can only make things worse. Given that these loans are offered with a very high interest rate, your expenses increase. A payday loan can only work well as part of a short-term strategy. It makes sense to take out a payday loan as to cover the cost of an urgent car repair, for example. You risk your financial wellbeing if you take out payday loans regularly. Retailers and banks might be unwilling to deal with you. Moreover, you financial institution may take steps to sue you, or your account may be sent to collections. This will affect your credit score.

What are the alternatives to payday loans? One is to open a savings account and use it as an emergency cash fund. And why do you need one? Persons who do not have savings may have to take out a payday loan or another loan with an unfavorable interest rate and terms. An emergency cash fund allows you to manage your finances better. You have more options to choose from with cash on hand. Money markets and savings accounts are good places to keep cash as it has to be liquid. Money should be easy to access, without excessive costs, delays, risk, or penalties. Of course, you should think of how much is enough (how much to stash). Here, it is important to save enough to make you feel secure. In general, you should have enough money to cover between 3 and 9 months of your living expenses.

Another alternative to payday loans is building a decent credit score so that you can borrow from mainstream financial institutions. There are different ways to go about this, be it by obtaining a department store or a secured credit card. You should make timely payments and not borrow excessively. If possible, you should apply for an unsecured or signature loan with some credit union or bank, and your best bet is a financial establishment you are already a customer of.

If you have exhausted all options ? even asking friends or relatives for a loan ? you may try to increase your income by picking up a second job. This is another way to build an emergency cash fund. Finally, if you have accumulated excessive debt, one option is debt modification.

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Source: http://articles.seowebdesigns.biz/finance/pitfalls-with-payday-loans-and-alternative-financing-facts

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