Are there alternatives for emergency loans?If you need cash right away and are thinking about an emergency payday loan, be sure to consider less expensive alternatives - if possible. For example, is there a credit card you can use for your emergency? If it's something that can't be charged, you might be able to get a cash advance. If you belong to a bank or credit union, try applying for a small loan. And as humbling as it may be, are there friends and relatives that can float you some or all of what you need? You might even want to consider a pawn loan if possible. Why all the alternatives? Because emergency payday loans can often cost you a lot more than you think.
What emergency loans from a Payday lender can cost you
According to the Consumer Financial Protection Bureau (CFPB), if you take out a payday loan, you will likely be charged a fee of between $10 and $30 for every $100 you borrow, with $15 per $100 fee being the average. So for example, if you need $300, you would have to pay back $345 in just a few weeks, assuming a fee of $15 per $100 borrowed.
The CFPB warns that if your budget is already tight, you're simply compounding your debt situation. If this becomes the case, they go on to say that the payday lender may provide you with the option to pay just the fee you owe and extend the loan another few weeks. However, by doing so, you would spend another $45, and still owe $345 when the extension is over - that means you're spending $90 to borrow $300 for one month.
Anyone can experience cash flow issues that could lead to applying for an emergency payday loan. But if you do, the CFPB recommends understanding upfront the fees you'll be charged, how your loan will be repaid, and how much the loan could ultimately cost you before agreeing to use this alternative form of credit.
For more information on finances, budgeting, and credit, visit the Protective Learning Center.