Protect yourself againt the shady practices of payday loans and pawnshops and idendify better options with these simple tips.
WHY YOU SHOULD AVOID: Payday Loans
You’ll pay 400 percent to 800 percent interest on a loan to carry you until your next paycheck; if you’re late, fees mount. According to the Center for Responsible Lending, the average payday-loan borrower flips her loan nine times per year, shelling out more in interest than the original loan.
- Ask your employer for an advance against your next paycheck.
- Postdate a check. You might be able to postdate payment on an unexpected expense, such as a car repair, until funds are in the bank.
- Contact your creditors. You might get an extension or a payment plan, although you likely will incur a late charge or a higher interest rate.
- Opt in to overdraft protection. You’ll pay up to $35 for each transaction below your balance. If you carry a negative balance, the interest rate is higher than most credit cards’.
WHY YOU SHOULD AVOID: Pawnshops
You will get a loan of about 20 percent of the value of whatever you pawn. If you default on the 300 percent APR loan, the shop keeps—and tries to sell—the item.
- Look for banks that accept your item as secured-loan collateral. The Provident Loan Society of New York (providentloan.com) makes six-month, fixed-interest (2.167 percent per month, or 26 percent APR) loans. You must ship the item to the bank for appraisal.