As Chief Lending Officer at VyStar, I know that life is full of financial surprises. When you’re strapped for cash, a payday loan can seem like a simple solution to a difficult financial situation. But the truth is that payday loans can make your financial problems even worse.
How Payday Loans Work
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 2 – 4 weeks from the date you received the loan. Payments are often made in one lump sum when you receive your next paycheck or Social Security check.
The biggest issue with payday loans is that they can drive you deeper into debt. If you are late with your payment, you will typically be charged a fee, as well as even more interest. Since the average annual percentage rate (APR) on a payday loan is 400%, that means you could end up paying the lender much more than the original amount you borrowed.
More than 80% of payday loans are not repaid by the due date, which means that most borrowers have to roll the debt into a new loan. Only 14% of people who take out a payday loan can afford to fully repay it at the end of the term. On top of that, 1 in 5 payday loans ends up in default.
The Hidden Costs of a Payday Loan
What this means is your $200 loan could end up costing you hundreds more in fees and interest. If you default, that lowers your credit score and limits your borrowing options in the future. Once you’re trapped in the payday loan cycle, it can become even more difficult to pay off your debt and start saving.
While you might think a payday loan is your only way out of a desperate situation, there are better options. Whether you’re considering taking out a payday loan for the first time or trying to break out of the cycle of payday lending, we’re here to help. Here are some alternatives to payday loans that you can consider.
Skip a Payment
If you already have a loan or credit card with VyStar and you’re up-to-date on your payments, you may be able to apply to skip a payment. That can free up some cash 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, so you don’t have to repay it immediately. There are some restrictions, so it’s important to contact us to discuss your options before you skip a payment.
Consolidate Your Debt
If it’s often difficult to make ends meet, debt consolidation may be the answer you’re looking for. Many credit cards and store cards have high interest rates, so consolidating that debt into a lower-interest loan or credit card can reduce your monthly payments.
Consolidating your debt can simplify your finances and make it easier to pay off your debt faster. In some cases, it might even help improve your credit score. And with a lower interest rate, you could save hundreds—or even thousands—of dollars over time.
We offer several debt consolidation solutions to help you eliminate your high-interest debt and improve your financial well-being.
Apply for a Personal Loan or Line of Credit
If you need cash quickly, a personal loan may be right for you. While payday loans have high fees, high rates and a short repayment term, personal loans and lines of credit from VyStar have no fees, competitive rates, and repayment terms that work for you.
If you find yourself choosing the most important bill to pay now and waiting on the rest until after payday, an overdraft line of credit may be a good choice for you. You use only what you need, when you need it, for significantly less than the cost of a payday loan. Our representatives can help you link an existing line of credit to your checking account or apply for a new line of credit.
Refinance Your Auto Loan
If you have an auto loan at another financial institution, you may be able to refinance your car loan for a lower monthly payment. With a new auto loan from VyStar, you’ll have no car payments for up to 90 days, which frees up your cash for other needs.
Use Your Car as Collateral
If you have already paid off your car, you may be able to use it as collateral for a new loan. With a collateralized loan, you’ll get a much lower interest rate than a payday loan, along with an affordable monthly payment. Give us a call at 904-777-6000 or 800-445-6289 to discuss this option.
A Financial Makeover
Along with these alternatives to payday loans, we also offer free, unlimited, one-on-one financial counseling through our partnership with BALANCE. Your advisor gives you confidential advice and helps you create a personalized plan based on your financial goals.
For more information about payday loan alternatives, call us at 904-777-6000 or 800-445-6289, or visit one of our local branches.