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Alternatives to Payday Loans

Payday loans are very expensive kind of financing that has to be paid back very quickly. Therefore a smart person should look into all the alternatives available before getting a payday loan.

The reason you should look into alternatives to payday loans is obvious. The average payday loan comes with an interest rate of 25% or more and has to be paid back within two weeks to a month. This means an individual can end up paying $100 for a $400 loan.

An individual who looks into the alternatives to payday loans can save himself or herself hundreds of dollars and lots of grief. Payday lenders can be relentless when they try to collect loans that haven’t been paid off.

Pawn Shops as an Alternative to Payday Loans

One excellent alternative to payday loans that many people neglect is the old fashioned pawnshop. A pawnbroker loans money on valuable possessions such as jewelry, guns, musical instruments, tools and vehicles.

The first advantage to using a pawnshop is that you will have more time to pay off the loan. Most pawn loans don’t become due for 30 days. Another advantage to a pawn loan is that you won’t face debt collection or legal action if you don’t pay it back. The pawnbroker keeps the valuable as collateral and takes possession of it if the loan is not paid back.

The big disadvantage to pawn loans is that the amount lent is often very limited. Generally a pawn loan is for a percentage of the value of the item pawned. The pawnbroker does this so she can make a profit if they have to sell the item pawned.

Finally you will loose the possession pawned if you don’t pay off the loan. This means you should only pawn items that you can afford to loose or can live without such as jewelry.

Home and Real Estate Equity Loans

A great form of financing for those who own real estate or a home is an equity loan. In this kind of loan the lender loans money on the equity in a piece of real estate.

The equity is the difference between a piece of real estate’s value and the amount it is mortgaged for. For example the owner of a home worth $100,000 with a $50,000 mortgage on it would have $50,000 in equity to borrow against.

The advantage to real estate equity loans or lines of credit is that the borrower has quite a long time to pay them off usually several years. Equity loans usually come with much lower interest rates.

A disadvantage to equity is loans that the amount of money available is limited to a percentage of the equity. Persons with bad credit will have to pay higher interest rates on equity loans. Another disadvantage is that it might take several days or weeks and quite a bit of paperwork to get an equity loan or line of credit.

Government Benefits

Always check out the government benefits that maybe available to you such as unemployment insurance, Social Security, food stamps, etc. before taking out a payday loan. Government benefits don’t have to be paid back and they can provide supplemental income.

A person should be able to determine what government benefits they can get by going to the website of their state’s government. This site should have links to unemployment insurance and other benefits. Information about Social Security can be found at Social Security is available to persons over 62 and disabled people who can’t work.

You should check out these benefits because your tax money has paid for them.