Don't get a payday loan, use these alternatives instead

Payday loans market themselves as a quick, simple way to get money when you need it fast. Yet while payday loans can seem like a short-term miracle – beware. They are also likely a long term nightmare, and often lead to a cycle of debt and repayment that can make it difficult for you to stay afloat.

Payday loans are typically small, short-term loans of around $500 or less. The terms of the loan include paying it back in a very short time frame, usually your next payday. Along with the amount you were lent, you have to pay additional fees, and are very likely to incur some extra debt should you fail to pay.

Watching payday loan commercials, you may get the idea that these loans are a simple, helpful way to make it to your next payday without struggling or coming up short. Unfortunately, the bigger picture on these loans indicates that the unreasonable terms they offer can quickly lead to you becoming trapped using the service.

This is because many people who are in need of a payday loan do not have the means to pay back the extra fees on the loan. This leads to them struggling again during their next pay period, which likely means they will have to rely on a payday loan once again. If they do not break the pattern, they may become stuck in a cycle of debt repayment, rather than having the freedom to make choices for their financial future.

A payday loan is a short-term loan for a small amount. This loan goes by a few other names, such as a cash advance loan, check advance loan, or deferred deposit loan. The basics of the loan stay the same.

Taking out a payday loan is relatively straightforward. You will typically write out a post-dated check to the lender or institution, where the date is your next pay day or a set time away, such as two weeks. The check will include the full amount lent and any additional fees. You may also have to sign off to give the agency permission to access your bank account via an electronic transfer on the agreed date. The lender then gives you the cash.

The date is typically your next payday, or an agreed date within two to four weeks. If you do not pay back the full amount plus fees by this date, the lender has the right to cash the check or debit your account.

Partly because of the type of loan and who it targets, many states have put limitations on payday loans, such as capping the loan amount and the additional fees they can charge.

It varies from state to state, but companies may be allowed to charge a max of anywhere from 10 to 30 dollars per $100 you borrow from them.

If you can pay a payday loan back on time and it is a one-time loan, there should be no problem with getting a payday loan. However, the reality is that the people who payday loans target are likely to already be financially unstable, which already makes them high risk loans.

An estimated 12 million Americans use services like these each year. Many have trouble making ends meet or are living paycheck to paycheck. Payday loans may offer them very temporary relief from their financial struggles, but in the long term, the glaring issues with these loans raise a number of red flags.

Issues with payday loans include:

The high interest rates of these loans often go unnoticed because they are such short term loans. But if you were to find a regular personal loan with similar terms, you would likely head for the hills. For example, say you take out a $500 loan that charges you just $15 for every $100 you loan. If this were factored out as an annual loan, that is an interest rate of nearly 400%. These are easily some of the worst loan rates available.

When you take out a payday loan, you have a very short amount of time to pay it back in full. This does not leave you much breathing room, keeping the financial pressure on you even after you get the loan.

Unlike other personal loan options, payday lenders typically do not report your payments to the credit bureaus, meaning the loan is not even helping build your credit score.

If you cannot manage to pay back the loan on time, you will have to deal with the additional fees these lenders are allowed to add on to your total amount. If you have to re-borrow the debt in order to pay it off, these fees can really add up.

These fees may include:

Even simple mistakes may lead to you paying much more than the original loan amount, making payday loans some of the riskiest loans on the market.

While a payday loan may seem tempting, as it can help you out in the short term, the unreasonable rates and high risk nature of the loan make it undesirable. Luckily there are a few alternatives to payday loans that may offer you better terms and be easier to handle.

Getting an actual paycheck advance from your employer may be an option in some states, with no additional fees. Consider all other options and talk to HR about your choices, however, as this is not always an option.

A member of a credit union may have access to a personal loan with a better interest rate than a payday loan. Some credit unions also offer very small loans, similar to payday loans, to the tune of $200 - $1000. Unlike payday loans, the rates, fees, and terms are typically much lower or easier to manage.

In an emergency, a personal loan may not be the most ideal options, but could still offer you better rates in the long-term compared to payday loans. Shop around however possible to find competitive interest rates before agreeing to loan terms, and be sure the lender reports to credit bureaus so the loan will help you build positive credit.

While they may not report to the credit bureaus, borrowing money from a friend may be an easier way to access money without paying the extreme fees from a payday loan.

Oftentimes people who opt for payday loans are struggling with debt. A debt settlement may help relieve some of the pressure form debt – though it may hurt your credit to do so.

In the vast majority of cases, payday loans are not worth the risk involved. There are many other ways to get cash quickly, which have better terms and are not as risky as payday loans.

However, it is still important to carefully consider all your other options before moving forward with any loan offer, even in an urgent situation. The ideal loan will give you access to cash, help build your credit, and set you up for long-term financial success.