Critics of payday loans are becoming increasingly vocal, and are making headway in many states. Unfortunately, as they get lawmakers to change laws, they’re limiting the choices available to consumers. Opponents of payday loans argue that payday loan fees are unreasonable, and that limiting what a payday lender can charge for fees is just a way to protect consumers.
This controversy is so active that the Federal Trade Commission feels the need to put up a warning about payday loans, along with some suggestions about how consumers can avoid using a payday loan service. While some of the advice makes sense, in some ways they’re missing the point about why people borrow on payday loans in the first place.
Among the alternatives offered by the FTC are:
1. Take a small loan from a loan company, bank or credit union. Unfortunately, many people whose credit record isn’t the greatest will have a hard time finding these kinds of loans.
2. Take a cash advance from a credit card. Of course, this type of loan will have a higher interest rate than other sources of funds, but it may still be less than a payday loan rate. In addition, because a credit card cash advance doesn’t require the customer to pay off the entire balance within a short time, the customer can wind up paying much more in interest because it will take longer for them to pay off the cash advance.
3. Shop around for the lowest-cost credit offer. This makes good sense for anyone. Even between payday loan vendors, rates can vary. Check the APR, the finance charge, loan fees and any other costs. Pick the offer available to you that has the best overall fee structure.
4. Talk to a consumer credit counseling service if you’re having issues with debt repayment. Most of the time, however, customers don’t take out payday loans to pay bills. They take out payday loans for more immediate needs, such as car repairs.
5. Make a realistic budget. This is also common sense. Know what your monthly and daily expenses are, and plan accordingly. Not spending above your means is important if you want to keep your debt under control. Here again, however, many consumers turn to payday loans for needs that can’t be predicted, such as catastrophic repairs to their vehicle or an insurance deductible after an accident.
6. Check into overdraft protection from your bank. Many banks will cover checks that overdraw your account, saving you fees from the place where you wrote the check. Unfortunately, the fee that a bank charges you to overdraw the account may actually be more than what it would have cost you to take out a payday loan.