Taking versus declining a payday loan, What’s the risk?
Alternatives to payday loans for short-term credit in times of unexpected expenses or emergencies
‘Payday loans’ are small cash loans often taken in cases of emergencies and unexpected expenses. They are due for repayment in a short amount of time. (The name comes from the fact that many are paid using the borrower’s next paycheck.)
Payday loans are small seemingly innocuous amounts of money. How could these result in debt? Well, read on, for they are actually a very common cause of people unexpectedly falling into debt and bankruptcy.
Benefits Of Payday Loans | Financial Risk Perth
Why do people use payday loans to pay off bills and expenses?
Payday loans are often by far the easiest or the only way to pay for unanticipated expenses. These kinds of expenses (as you already know), can come from places that you never imagined—from celebrations to emergencies:
Your mouth gets hit by a ball and you need a dental operation.
Your daughter announces her engagement and you need to buy her a present.
You receive a notification of an overdue bill that you remember forgetting to pay.
Downsides And Risks Of Payday Loans | Debt Accumulation Brisbane
What are the rates on payday loans and the penalties for overdue bills?
This is the side of payday loans that makes them notorious for landing people in debt and insolvency. Payday loans usually have reasonable fees. Somewhat more than large long-term loans but not enough to plunge most people in the debt trap.
The problem comes when payday loans aren’t paid at their due date (in the very near future). For overdue payday loans, the interest rates spike dramatically. It is often difficult to pay the payday loan back on time because of the short time period specified and because the unexpected expense in your life might not be resolved as fast as you had hoped.
We have heard the ‘payday loan debt’ story all too many times before. A person with good financial sense and a clean credit rating encounters a single expense that they need a loan for. They take a payday loan, because judging from their previous credit history, they will have no problems paying it back. But then the expense grows or doesn’t go away or another unexpected thing happens like losing their job, and they find that for the first time, they have an overdue bill with large penalty rates and they have fallen straight into a debt spiral.
In NSW and Qld, legislature imposes an interest rate cap of 48% p.a. to protect borrowers from exploitative interest rates. So this is the maximum that an overdue payday loan can charge you, but it is still a significant amount that you want to avoid, especially if you have multiple debts and mounting debt problems.
These laws are something to be thankful for in NSW and Qld, because the payday loans of banks and other lending institutions have often been criticised for being exploitative. Many have accused them of being designed to catch people in a debt trap, by having exorbitant penalty rates coupled with a curt maturity date.
Alternatives To Payday Loans | Debt Solution Sydney
Better sources of short-term money than payday loans
Payday loans are an immediate option for many. They are well advertised by large corporations. So those in the grips of debt stress and financial turmoil might not realise that there are in most cases, other better less risky and cheaper options available. Here are some alternative sources of short-term credit:
Pawn shops: an old-fashioned often overlooked way to get quick cash. You can liquidate many of the goods that you own that you probably don’t need (most of us have this kind of stuff laying around). Just be warned, that many are underwhelmed by the price a pawnbroker is willing to pay for an item. This is to be expected. Make sure you know how much the item would sell for on ebay, then reduce your expectations by a margin. This way you won’t be disappointed or ripped off.
An advance on salary: by talking to your employer openly about your financial situation, you may be able to negotiate an advance on salary. Employers don’t usually advertise their willingness to do this, but are open to many things as long as it helps their employers be in the right situation to be productive.
Cash advance on a credit card: this is recommended for loans that are expected to take more than two weeks to pay. The rates on credit card advances are somewhat expensive, but still a fraction of those on overdue payday loans.
But Long-Term Financial Security Is Better Than Short-Term Loans | Debt Repayment Darwin
Avoid unpayable debts and expenses by gaining financial security now
And it must be noted, that the best alternative to payday loans is by avoiding the need for short-term credit altogether. By repaying your current debt obligations and liabilities and by accumulating savings and wealth, you will have enough money in the bank and cash in hand to pay most unexpected expenses that come your way.
Potentially the fastest and most cost-saving way to pay off your debts is debt consolidation. There will be no more round-the-clock bills and penalties for forgotten payments, just one manageably priced bill per month. And this bill will actually be less than the sum of all your current bills. Get Out Of Debt Today works by arranging with your debtors to give you reductions to your debts as incentive for consolidating your debts. (Debtors encourage debt consolidation because it gives them confidence that their debts will be repaid.) If you think that debt consolidation sounds like the debt solution for you, call (02) 9011 7919 or fill out the form in the sidebar and we can contact you!
Or for more information, read some of our other articles on debt consolidation: