Learn which loans to avoid and how to find smart alternatives
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.