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Payday loan companies are also criticized for renewing loans multiple times, costing borrowers significantly more in interest charges. The government, as well as consumers and financial organizations, have expressed concern that loans often target the most vulnerable.
Choosing the best alternative to a payday loan starts with determining what makes it attractive to you. If you want a short term loan for a week or two, you may have a different financial product than someone looking for a bad credit loan.
Loans to credit unions
Credit unions are touted as the ideal alternative to payday loans. They offer a low interest loan, and many unions give loans to people who have already been turned down by banks and other major lenders.
There are many types of credit unions, and most have specific criteria that must be met for an application to be accepted.
There are credit unions open to people who live in a specific location, work in a particular industry, or are members of a particular group or organization.
It may be necessary to have invested money in a credit union, usually in the form of a cooperative savings account, before you can qualify for a short-term loan, but this is not the case. case for all.
Check the criteria before you apply, but be prepared for a long wait with some credit union loan applications.
A social fund budgeting loan
A budget loan is a specific type of loan offered by the Social Fund of the Department of Work and Pensions (DWP). This is an interest-free loan, but will only be available to people who have been claiming specific benefits for 26 weeks or more.
These loans are also only available for applicants to use for specific purposes.
Employer cash advance
If you need the cash to hold on until payday, for example because you’ve been struggling with an unexpected car repair bill, you may want to consider asking your employer.
Just as a payday loan repayment would be taken from your next payday, so will your employer’s cash advance. The biggest difference is that you won’t have to pay interest or administration fees.
Not everyone is comfortable asking their employer for a cash advance. If you have a good relationship with them, it can be a hugely beneficial way to borrow money.
Your employer may allow you to repay the money over a number of months, and they may be willing to offer you extra hours to cover it.
Borrow from friends and family
You should be equally careful if you plan to borrow money from friends or family. Failure to repay the money at the agreed time can lead to serious problems in a relationship.
Keep track of the repayments you make to avoid arguments and agree on a specific repayment schedule.
Authorized overdrafts
An authorized overdraft is when you can borrow through your bank account allowing you to enter a negative bank balance up to a limit. You will be charged interest or daily fees for the use of your overdraft, which means loans and credit card could be cheaper.
However, if you are in a hurry, contacting your bank to request an overdraft may be quicker to set up. If you have some spare time, consider switching to a bank account that includes a 0% interest overdraft and you can borrow for free.
Make sure you have authorized your overdraft with your bank, don’t assume you have it as standard. An unauthorized overdraft will cost much more than an agreed overdraft with both higher interest rates and additional fees and charges.
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