You probably see ads for payday loans just about every day. They’re on TV, the radio, and even right in your inbox. Sometimes referred to as cash advances, a payday loan is a small, short-term loan that is designed to cover the borrower’s expenses until his or her next pay check.
If your car breaks down and you don’t have the cash on hand to get it fixed, you could take out a payday loan to pay for the repairs. You’d then have to pay the loan back with interest the next time you got paid.
Sounds like a great tool for borrowing money in an emergency, right? Well before you sign on the dotted line you should do your homework because payday loans are usually not the best option. If you read the fine print you’ll see that the interest rate you’re being charged is much, much higher than you’ll be charged elsewhere.
Alternatives to payday loans
- Ask a friend or family member for a loan.
- Pay with your credit card.
- Take out a cash advance with your credit card.
- Dip into your emergency fund, if you have one.
- Work a little overtime.
- Work some odd jobs like mowing lawns or painting.
- Sell things you don’t need for extra cash.
Any of these methods will result in you paying less interest than a payday loan.
Now, I realize payday loans meet a need and in some cases they can be useful. But it’s important that you understand them before you end up getting in over your head.