By: Jenny Vipperman, Chief Lending Officer
As VyStar Credit Union’s new Chief Lending Officer, I know that life is full of surprises. And when you are strapped for cash during the holidays or simply caught off guard by a financial burden any time of the year, it can sometimes feel like you have no other option but to consider taking last-resort measures, like payday loans. While payday loans may, at first glance, seem like a reasonable solution to a difficult financial situation, the truth is they come with a variety of disadvantages that could put you in an even worse financial position.
Payday loans are short-term, high-interest loans for small amounts—typically $500 or less. The due date for the loan repayment is usually between two and four weeks from the date you received the loan, and payments are usually made in one lump sum on your next payday—or whenever you have another source of income, like Social Security. Payday lenders may structure their repayment process differently, and laws governing payday lending vary from state to state.
The real issue with payday loans is the fact that their high interest rates and short repayment period can drive you deeper into debt. If you are late on your payment, you may be charged even more interest—putting you at risk of paying double (or more) of the borrowed amount. The average annual percentage rate (APR) on a payday loan is 400%, and over 80% of payday loans are not repaid within the agreed-upon timeframe, leading consumers to roll over to a new loan. Only 14% of consumers who take out a payday loan can afford to fully repay it at the end of the term. Plus, 1 in 5 payday loans ends up in default.
What this means is your $200 loan could end up costing you hundreds more in fees and interest—and likely result in default, which will further damage your credit, limit your future borrowing options, and ensure your reliance on the payday lender for future credit.
While you might think a payday loan is your only way out of a desperate situation, that is certainly not the case. There are other financially sound options for you to consider. At VyStar, we are dedicated to providing financial education and offering valuable products and services to help our members meet and exceed their financial goals, which is why we offer a variety of alternatives to payday loans. Whether you or someone you know is considering taking out a first payday loan or trying to break the cycle of payday lending, we are here to help.
Here are some options to consider:
If you have outstanding loans with a financial institution and need extra cash to make ends meet—and if your account is in good standing—you may be able to skip a loan payment, which can free up the cash you would have otherwise used to pay your loan to cover other expenses. The best part is that you are not taking out another loan; the skipped payment is added to the end of your loan, and you do not have to repay it immediately. If your loan is with VyStar, contact us. A member of our team may be able to help.
As opposed to skipping a loan payment, which only frees up cash one time, debt consolidation may be the answer you are looking for. If you have high-rate credit cards and loans with high payments, you may be able to consolidate them to lower your monthly expenses. Not only can this help you get caught up, but you could save hundreds, or even thousands, of dollars over time. VyStar offers several different debt consolidation solutions to help our members improve their financial well-being and eliminate high-interest debt.
If you need instant funds and think debt consolidation may not meet your needs, a small signature loan may be right for you. As opposed to a payday loan, which includes high fees, high rates and a short term, a signature loan has no fees, a reasonable rate, and a term and repayment structure that works for you.
If you have an auto loan elsewhere, VyStar may be able to refinance your loan for a lower monthly payment. You will also have 90 days until your first payment with our standard 90 Day No Pay program, which also helps free up your cash.
Paying monthly bills can oftentimes prove to be overwhelming, especially during financial hardship. If you find yourself having to choose the most important bill to pay now and wait on the rest until after payday, an overdraft line of credit may be a better choice. You use only what you need, when you need it, for significantly less than the cost of a payday loan. A member of the VyStar team can advise how to link an existing line of credit to your checking account, or help you apply for a new line of credit to get you covered.
If you need cash fast to cover unexpected expenses, and if you own your current vehicle outright, you may qualify for a lower-rate loan using your title as collateral. This secure, low fixed-rate loan allows you to use your vehicle’s equity to borrow up to the current value of your vehicle at an affordable monthly payment. VyStar offers this type of collateralized loan for a fraction of the price of a payday lender.
Along with the options mentioned, VyStar also offers our members free financial and debt management counseling through our partnership with BALANCE, as well as money management coaching through our Money Makeover program. For more information about these loan alternatives and more, we welcome you to visit our Lending page, call us at (904) 777-6000 or 1 (800) 445-6289, or visit us at a branch near you.
Please remember that whatever financial difficulty might come your way, you can rely on VyStar for information, assistance, advice and practical solutions for your needs. We are here to help you improve your financial well-being, plan for the future, and live your best financial life.