In some cases, a traditional bank loan is not available to a person. For example, the money is needed urgently (there is no time to wait until the application is considered), there is no proof of income, the credit history is bad. In such cases, you have to look for other options for borrowing money. And the first thing that comes to mind is a payday loan.
Why do people choose a payday loan?
Payday loans are extremely widespread in the USA. This is explained by speedy application, same-day funding, no paperwork and relaxed borrower requirements.
Payday loans are becoming more and more popular because of their affordability. Microfinance institutions are ready to issue a loan to almost anyone who needs extra cash for various purposes. At the same time, informal employment and poor credit history usually do not prevent customers from getting approved for a loan. Besides, people can apply for payday loans online, which speeds up the process significantly.
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We have a range of online loans and borrowing options to choose from.
However, payday loans also have a few disadvantages. First, it is a higher interest rate: payday lenders usually charge interest of $15-$20 for every $100 borrowed. Secondly, microfinance institutions are not ready to issue large loans – you can expect to borrow up to $1,000. Thirdly, in most cases, the lending term is also limited and does not exceed 31 days. That is, the borrower will need to quickly find money to repay the debt.
To put it mildly, a payday loan is fast and easy to access but is not suitable for every person. Therefore, people may need to look for alternative options. And they do exist.
Best alternatives to payday loans to consider in 2022
A difficult financial situation can arise in everyone’s life. A bank loan is not always a possible way out. To get approved, you need to have a stable and sufficient income, a perfect credit history, and meet many other requirements. Microfinance institutions are much more willing to issue loans, but everyone knows what payday loan amounts are limited to $1,000 (sometimes up to $2,500).
A suitable solution in a situation when you need a larger amount can be title loans (loans secured by property). They are available to anyone who owns an apartment, house or a car.
A title loan works as follows: you receive the necessary amount from a bank or another organization, providing the property that you own as a guarantee of loan repayment. Further relations between the parties develop in the same way as in the case of a conventional personal loan. The borrower pays the lender every month a part of the amount with interest accrued for the use of the loan. If the debtor is unable to repay the loan, most often he or she is offered debt restructuring and a new repayment schedule. It rarely comes to court: it is unprofitable for a financial institution to engage in the sale of housing, this is an extreme measure in case of serious violations.
Since the collateral is a highly liquid asset, the lender does not have to worry too much about the solvency of the borrower. Therefore, it is much easier to get a secured loan (title loan) than an unsecured personal loan.
What are the other benefits of getting a title loan?
- Favorable interest rate. Sometimes it is even lower than for traditional personal loans, and in any case much less than for payday loans.
- Large loan amounts. You can borrow up to $10,000 or even more.
- Long maturities. If it is not possible to quickly pay off the loan, you can take a title loan for a long period – up to 15 years.
- The ability to spend a loan for any purpose. A loan secured by property can be used for whatever purpose: to buy an apartment, start your business, invest in education, etc.
One of the advantages of title loans is fast processing. It happens that money is needed urgently, while the process of reviewing documents in a bank takes several days or even weeks. With a title loan, there will be no such problems: a lending decision is often made on the day you apply.
2. Pawnshop loan
A pawnshop loan is suitable for people who have no proof of income and also a very bad credit history. That is, you can get a pawnshop even if you have been rejected by microfinance institutions.
A pawnshop loan is a guaranteed option for getting fast cash if you are able to provide collateral.
To get a pawnshop loan, liquid property is required for collateral. You can typically expect a loan of 25% to 60% of its resale value. Pawnshops accept both relatively cheap property (jewelry, telephones, electronics, household appliances) and expensive ones – vehicles.
The pawnshop does not make a request to the credit bureau and does not enter the borrowers’ data there. The disadvantage of a pawnshop loan is that there is a risk of losing property in the event of default on debt obligations.
Benefits of a pawnshop loan:
- The most obvious advantage of a pawnshop is the inability to get into a debt hole. After all, the loan is already secured by collateral and in case of non-payment, the pawnshop simply takes the collateral. Thus, even if you do not pay off your loan, collectors will not threaten you, and your credit history will remain clean. This is the main advantage of pawnshops – they do not check your credit, and even customers with a very bad credit history or no credit history can get financial support.
- It is possible to get a pawnshop loan even if you are a foreigner – if you have no residence permit or no US citizenship.
- The next advantage is a lower interest rate compared to payday loans. Pawnshops have no risk, their operating costs are low, so they can afford to issue very cheap loans. This can be convenient if you need money urgently, and there is a pawnshop next to you.
- No need to provide a guarantor – now it becomes clear why pawnshop loans are quite popular.
3. Credit card
If you often need small amounts of money for short periods, then you can get a credit card. It is quite possible to find a bank that will agree to issue a credit card without income proof. But the limit will be small.
With a credit card, you can borrow funds at any time. The interest rate will be lower than for a payday loan, a pawnshop loan and a bank loan. And if there is also a grace period when it will be possible not to pay the accrued interest at all.
We recommend that you compare credit cards offers 2022 to select the best in cash back, rewards, travel, business, 0% APR, etc.
Benefits of credit cards:
- you can use a credit card to pay for anything – in a store, on a website, you can even withdraw cash (but there may be a commission);
- a credit card has a grace period from 25 to 55 days, during this period the bank does not accrue %;
- a card can be replenished in parts;
- as soon as you replenish your card, you can use these funds for your needs again;
- using a credit card gives you the opportunity to get cashback.
- using a credit card does not hurt your credit.
Of course, it is up to you to decide where to get a loan. Before you make a final decision, we recommend that you weigh the pros and cons of all the suggested borrowing methods.
Chances are if you are reading this article, you probably have some debt. And if you’re in a debt hole, the only real way out is to change your debt habits and gradually start digging your way out. Here are 8 ways to dig yourself out of a financial hole.
Tags: credit card, finance, money, online loans, payday loans