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Payday loans aren’t the only choice
Cash advance alternatives have their costs, too
The state of North Carolina recently clamped down on payday loan stores, effectively putting them out of business. For those who cannot, or do not care to, do business with payday loan stores, there are alternatives. We will look at those alternatives and their costs.
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Cash advance loans are one choice, but not the only one
Citizens of North Carolina have recently found themselves without the ability to borrow money from payday loan stores. The state, noting that most lenders were violating state banking laws, recently shut the payday loan industry down. For many people who have been taking out such short term loans, this may come as a shock. But there are other choices available, and some of them are better choices than the 400% annual interest rate loans charged by these quick cash stores.
Here are some alternatives to payday loans and their approximate cost when expressed as an annual interest rate:
- Cash advance from your employer. Not all employers are willing to give their workers an advance on a paycheck, but a few may, and it’s always worth taking the time to ask. In all likelihood, such an advance would have a cost of close to zero, making it a wise choice. Of course, asking for such an advance regularly would probably not be a good idea.
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- Bank overdraft fee. Many banks no allow overdrafts. In years past, writing a check for more money than you had in your account would result in a bounced check and fees from both your bank and the business to whom you wrote the check. Many, if not most, banks now offer overdraft protection, where the bank will honor an overdrawn check for amounts of up to a certain limit. There is a fee for this service, which averages $25-30 per incident. It’s not really a fee, as it is intended to be a penalty, but if you need to do it and you are willing to pay the amount, than it is a service. For a $200 overdrawn check, this would work out to an interest rate of about 350%, which is comparable to that of a payday loan.
- Credit card bill paid late. The fees for paying your credit card bill late can run $15-30, which would amount to a 200-400% rate, possibly cheaper than a payday loan. But you should be aware that paying late on your credit card debt could also trigger the “default” interest rate, which could cause the interest rate charged to your account from here on to be as high as 30%. Paying your credit card bill late is not a good alternative to a payday loan.
- Short term borrowing from credit unions. Many small credit unions are now introducing short term, small amount lending for their members. It would be well worth your while to talk to your local credit union to see if they can help you out. Interest rates for such loans often run less than 20% per year, making this option a bargain if it is available.
Cash advances are occasionally good for short term, emergency cash. But there are other choices available that may be better suited to your needs. Before you seek out a high interest source of cash, look around to see if you can do better.
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