The non-profit Consumer Federation of America organization provides information and resources to consumers to help them access low cost loans for their personal needs. Not only can it provide families with the money they need, but it will indirectly help them deal with payday loans and lenders. As it will hopefully stop the cycle of households turning to those forms of financing.
In addition to this assistance, the company can also offer information to individuals on finding other low cost personal loan products with reasonable interest rates. There are many options out there. The goal of the organization is to provide assistance to individuals to help them end the payday loan cycle, and to also provide alternative ideas as well as sources of cheap loans.
Credit union or community bank – Before getting a payday loan, be sure to call your local credit union or community bank. Many of these lenders offering financing products directly to consumers. Apply for a small dollar loan, cash advance, stretch loan or low interest rate credit card at the credit union or community bank where you have your account. They are located in most communities.
If you do not have an account at one of these banks, then open one right away and then apply. The application process is very quick. You need to use a local community bank and not a major lender like Bank of America.
While many community banks and credit unions may not heavily advertise low interest rate, small dollar loans, the fact is that many of them do offer these products to their members. In fact, the Consumer Federation of America says that over 50% of these lenders offer the service. Note that often times they are called Stretch Pay loans.
The costs to borrowers when they use a community bank is almost always much lower than national banks and the interest rates are always less than using payday lenders. This will save families a substantial amount of money. The interest rate you will pay is usually a fraction of what a payday lender will offer, and that rate may range from 10-15%.
In addition, keep a credit card from these banks with borrowing capacity for emergency expenses. Be sure to use the credit card only for emergencies, and also be sure to pay the balance off as soon as you're able. It only needs to have a small total credit line on it. Keep in mind that a cash advance or small personal loan on a credit card from a federal government approved credit union cannot exceed 18% annual interest. Therefore a $400 credit union loan repaid in three months costs only about $12.10. Click here for more details.
Friends or family – If you do it right, this can be a low cost option. Before signing up for a payday loan, ask your family or friends to lend you money. The correct way to do it is to get a written agreement with them in which you agree to repay the personal loan, and spell out the terms of this in the agreement. This is key, and will go a long way towards helping you avoid disagreements and strife. This can help both of you, in that you receive a personal loan at a lower cost, and your friend or family member receives some additional money from the interest you will pay them.
Credit card advance – While not the best solution and never make a habit of doing this, an advance is still better than a payday loan according to Consumer Federation of America. One of the keys is to comparison shop before signing anything. Look wide and far for the cheapest card and lowest interest rates. This type of borrowing can serve as a personal loan when an individual has no other options.
Ensure the fees are reasonable, and look for the least expensive credit and cash advance that you can get. Spend time doing this research before you sign a loan contract with a credit card company or commit to incurring a debt with one of these lenders. Be sure to compare both the annual interest rate (APR) percentage rate as well as the finance charge in dollars. Note that all sources of credit (except bank overdraft loans) are required by federal government regulations and law to quote credit costs the same way. This will offer people the ability to easily compare costs between different loan products and credit card companies.
Credit card debts compared to payday loans - The savings are substantial. When using credit card cash advances referenced above, while they may sound expense, the cost can sometimes be less. There are many differences between the total cost of a payday loan and one of these credit card cash advances. If a borrower can’t determine this themselves, the Consumer Federation of America will recommend to talk to a counselor for advice.
In general, using a cash advance (although not low cost by any means) will still only cost a fraction of what using a payday loan does. For example, a $500 cash advance on your credit card, that is repaid in four months costs $48.86. We arrive at this amount assuming the card has an average 20.23% APR interest rate, no grace period, a 3% cash advance fee with a $7 minimum fee. On the other hand, a $500 payday loan repaid over four months may cost anywhere from $500 to $700 in total fees, if the rate is $8.75 per $50 borrowed, which is fairly common. Read more payday loan alternatives.
Military member personal loan products - If you are a military service member or veteran, Consumer Federation of America recommends you contact a local or relief society for your branch of the service. Another common place for information is a VA office. Or to learn about -personal loans, the service member can also call a local military charity. You may be able to get free financial help and resources for emergencies and paying unexpected expenses. Or many of these groups offer more general debt reduction advice.
If you can’t get direct financial assistance, at the least you should be able to receive a low cost personal loan product. Also most military bases partner with non-profit credit and debt counseling agencies, which can advise you on how to rebuild your credit, offering tips on various inexpensive loan products and help you reduce your debts over the long term.
Personal loan form a small loan company or a signature loan company – While these businesses may charge 24 to 48% annual interest rates on their personal loans and also permit installment payments over several months, this option still costs less than a payday loan.
So bring this back to a real life hypothetical example. Say you borrowed $500 from a signature loan company at 36% annual interest rate. If you are able to repay the funds in monthly installments for four months, you will have paid $38.04 in total interest costs. On the other hand, if you renewed a $500 payday loan every two weeks for the same four months period of time, you will have paid an astonishing $700 in total fees if the rate is $17.50 per $100 borrowed.
Overdraft protection – Look into this option at your local credit union or community bank. What these plans do in effect is transfer money from your savings account, your bank credit card, or a line of credit that you may have to cover debit card transactions or checks that overdraw your account. While once again this is not ideal and real overdraft protection does cost a fee to consumers, it is still less expensive than borrowing from a payday lender and it is still costs less than paying for a bounced check fee at your bank.
However, be on the lookout for, and be sure to avoid so called courtesy overdraft programs that may be offered by your bank. Both national and local lenders offer these programs, but they are not low cost options. These are much more expensive, and will charge the customer an expensive bounced check fee for overdrafts. They may also let you overdraw at the local ATM or with debit card purchases, both of which can lead the consumer down a difficult path and cause financial challenges.
Loans to avoid – Believe it or not, there are some forms of borrowing that Consumer Federation of America says people should never use. Some personal loan products, when not borrowed from the correct party, may in fact be more expensive than payday loans. Most credit counselors advise consumers to avoid other sources of high interest rate and cost, high-risk credit. Examples can include income tax refund anticipation loans, car titles or pawn.
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