The Dangers of Payday Loans: What to do Instead
For many, this economic situation means that it is difficult to make ends meet. Between inflation and the high cost of living, what should you do when you need a short-term means of getting cash? Some people turn to payday loans, finding the process fast and easy; however, payday loans are carefully designed to drag you deeper into debt, benefiting payday lenders and not your bottom line. Instead, opt for safe, accessible alternatives provided by your credit union so you can keep more of your hard-earned money.
What is a payday loan?
It can be challenging to find yourself short on cash with bills coming in. Some people turn to payday loans to cover their short-term expenses. Payday loans are typically for smaller amounts; under $500.
Payday loans usually don’t require a credit check and can mean quick access to cash. People may turn to payday lenders because they need money fast and feel they have no other option. But this comes at a hefty price. Payday lenders are not seeking to develop a beneficial long-term relationship with you. Your financial vulnerability is their opportunity to profit through high interest rates and fees that are deliberately difficult to pay off, further dragging you into debt.
What are the consequences of payday loans?
Payday loans are not a good financial option. These loans have extortionately high interest rates, which means you will be paying back a large sum of money to the lender, in addition to what you borrowed. In many cases, people are paying back double or triple the amount that they borrowed in the first place; money that could be used elsewhere to help with your financial goals and stability. These high-interest loans are tough to pay off, and they may include additional fees. If the debt is not paid by the agreed-upon terms (which are not in your favor), this may result in debt collection, which significantly impairs your credit.
What should I do instead?
You do not need to turn to a payday lender for a short-term loan. Credit unions provide safe, accessible options to get you the money you need to make ends meet. Earthmover Credit Union (ECU) offers unsecured and secured personal loans, and credit cards, with competitive interest rates and minimal fees. These products are easy to apply for and usually quick—some members are approved for funds within the same day.
For members who do have payday loans, paying them off quickly should become your first priority. The sooner you pay them off, the sooner you reclaim your finances.
What can members do to ensure they are in a good position when applying for loans?
- Make bill payments on time
- Do not keep high balances on existing credit cards or loans; aim for a low utilization rate
- Have proof of income available
Payday loans are not a wise option; a personal loan from your credit union is a solid financial solution. If you find yourself in a difficult financial situation and aren’t sure where to turn or what your options are, our financial counselors are standing by to help. Stop by a branch or give us a call at 630.844.4950. You can also apply online or use our 24/7 lending option. We can work with you to find personalized solutions and strategies for your unique situation. We are here to assist you, wherever you are in your journey.