Those who oppose payday lender often claim that cheaper payday loans alternatives exist. Individuals with good credit have a wide variety of for cheaper short term loan, but those with credit constraints will likely find payroll loans to be a better option. USA Today’s recent piece on payday loans no faxing alternatives is another sad example of the misinformation that poisons the public view. The daily’s suggestions aren’t cheap.
Payday loan alternatives myth No. 1: 401(k) loans
Consumers who are serious about payday loan alternatives like 401(k) loans should realize that there can be dire consequences. When it may seem great to be able to take out $ 50,000 or even half your 401(k) plan at low interest with no credit inquiry, you will find negatives. For example, you’ve to pay it all back before growth can occur, writes The Money Alert. Your retirement savings (more vital today than ever, considering the recessionary economy) can take a big hit. No additional contributions, no employer matching – nothing – unless you repay the borrowed sum first.
Losing take home pay via payroll deduction is one more pitfall of 401(k) loans. Some will swallow that, but job lost could be a bitter pill. Then you’ll only have 60 days to pay anything back or the 401(k) loan could be considered an early withdrawal. Penalties and higher tax brackets due to having to report the withdrawal penalty as taxable income are painful. That’ll cost you. A real option is in fact paycheck loans, which both the University of Michigan and the Federal Reserve have shown to be a proven inexpensive choice to loan shark use. Their scale is a lot more palatable within the short term than 401(k) loans, as well.
Credit card cash advances: USA Today’s second bright idea?
USA Today tries again with this pay day loans alternatives idea. Credit card cash loan seems attractive (with fancy blank checks and all), but there are major caveats. The cash loan APR is always more than the APR for regular credit card transactions. Second, if you use an ATM to get a credit card cash til payday loan, there are additional fees. This is why reading the terms and conditions of your credit card is a good idea, writes Young Money. If you need money and want payday loans alternatives, try using an payday installment loans instead. It won’t put you in a situation where you’ve to settle a cash until payday loan after the rest of the credit card charges are paid.
Bank and credit union small loans
Knowing your credit history is quite essential in this scenario. USA Today points out that the rate of interest for small loans from a traditional financial institution could be cheaper than payroll loans, but what the news daily barely deigns to mention is that such unsecured personal loans are not usually available to credit-constrained consumers. are a better alternative, in that that allow credit-constrained consumers to repair credit. Average consumers with problem credit should at least explore the possibility, something USA Today doesn’t recognize.
Citations
USA Today
usatoday.com/money/perfi/columnist/block/2010-06-15-yourmoney15_ST_N.htm
The Money Alert
themoneyalert.com/401kloan.html
Young Money
youngmoney.com/credit_basics/040216_01/
