Avoiding the Pay Day Lenders: Tips From Persels & Associates on What Consumers Can Do to Avoid These High Interest Loans

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A cash advance on a future paycheck may seem like a solution to a short-term financial crisis like a broken car, a “need” for a summer getaway or an emergency home repair. But odds are that cash advance or payday loan will come at an extremely high price - and trap the borrower in a never ending cycle of debt.

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Payday loans can be extremely expensive if you are unable to pay the loan off quickly

A cash advance on a future paycheck may seem like a solution to a short-term financial crisis like a broken car, a “need” for a summer getaway or an emergency home repair. But odds are that cash advance or payday loan will come at an extremely high price - and trap the borrower in a never ending cycle of debt.

The Federal Trade Commission (FTC) just charged a payday loan operation with illegally trying to garnish borrowers' wages and using other illegal debt-collection practices. The FTC said it is taking action to both stop these practices and require the operators to surrender improperly collected money so it can be used for consumer refunds, according to a recent CNN report.

But debt-strapped consumers don't necessarily do the math before they obtain those payday loans. They're likely to be more concerned with their immediate debt than the cost of the cash they're getting - until they find themselves paying interest week after week.

“Payday loans can be extremely expensive if you are unable to pay the loan off quickly,” said Persels & Associates Director of Operations, Joe Cosentini. “People can get into more trouble with the loan than the original financial crisis.”

Here are some alternatives to payday lenders if consumers are experiencing a financial crisis:
Payment Plan with Creditors
The best alternative to payday loans is for consumers to deal directly with their debt. Many creditors will negotiate partial payments if a payment plan is in place. Working out a payment plan with creditors can allow the consumer to adjust billing to pay off bills over a longer period of time.

Advances from Employers
Some employers grant paycheck advances to employees. Because this is a true advance, and not a loan, there is no interest and the advance is therefore cheaper than a payday loan.

Emergency Assistance Programs
Many faith-based groups and community organizations provide emergency assistance, either directly or through social services programs. For example, in partnership with state agencies, the federal Low Income Home Energy Assistance Program provides financial assistance to low-income households that are in a heating or cooling (weather) related emergency. A household that applies must: have at least one U.S. Citizen or a non-citizen who meets certain eligibility criteria; meet an income test; and be in a heating or cooling related emergency.

Credit Union Loans
Many credit unions offer small, short-term loans to their members. For example, North Carolina State Employees' Credit Union offers members a salary advance loan at 11.75% annual interest -- 30 times cheaper than a typical payday loan. Some credit unions also offer free financial counseling and a savings plan to help members get back on their feet. Many other credit unions offer very low interest rate loans (prime to 18% annual interest) with quick approval on an emergency basis. Unlike payday loans, these loans give the borrowers a real chance to repay with longer payback periods and installment payments.

Military Loans
Several companies offer loans ranging from $500 to $10,000 to active duty and retired military personnel. Payday loans are 10 to 13 times more expensive than these small consumer loans. These loans cost less than payday loans because they have much lower APR, ranging from 33% to 34.99%.

Small Consumer Loans
Small consumer finance companies offer small, short-term loans that cost up to 60% APR, usually in the range of 25-36% APR. These loans are also much cheaper than payday loans; a person can borrow $1000 from a finance company for a year, and pay less than a $200 or $300 payday loan over the same period.

The burden on debt is hard on families and on individuals. Persels & Associates is here to help consumers work out their financial struggles and start fresh again.

About Persels & Associates
Persels & Associates, LLC, and its entities are pioneers in the field of offering "unbundled" legal services to individuals who cannot afford traditional legal services. As Americans credit debt rose, Persels & Associates bridged the "gap" between consumers and their debtors. Today, Persels & Associates employs over 150 lawyers in the 50 states and has 25 central office staff attorneys with over 40,000 clients. For more information, please visit http://www.perselsandassociates.com.

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Karen McGagh
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