Smart Loan Options When You Are In a Cash Crunch

Often taking a loan seems to be the only way out to tide over. Since getting a loan from a bank or a credit union is usually possible only...
Smart Loan

Often taking a loan seems to be the only way out to tide over. Since getting a loan from a bank or a credit union is usually possible only with a good credit score, undertaking a fair amount of paperwork,and then waiting for the approval; most people take recourse to payday loans. While both are extremely viable though expensive options, it is advisable to know more as well as alternatives that can be explored:

Payday Loans Demystified

A payday loan is a short-term loan taken by the borrower with the promise of paying it back on the next payday. Typically, payday loans have three distinguishing characteristics; the amount is usually small, repayment required on the next payday, and the borrower needs a checking account to issue a check that the lender can deposit on the due date. Payday loans have come into certain notoriety because of the very high rates of interest charged. Even though the interest or service charge is often quoted as a dollar figure for a typical loan period of two weeks, as per law, lenders must disclose it as an APR. According to the Consumer Financial Protection Bureau, an innocuous $15 charge for $100 loan for a two-week period translates to an APR close to 400%. To put it in perspective, credit card issuers charge interest in the range of high-20%.

Payday Loan Requirements

Applicants need to be employed or have a regular income, be at least 18 years of age, have a valid identity and address proof as well as a checking account. If the loan amount is high, then a minimum income level may be required, however, credit scores are typically not looked into by payday loans direct lenders. It is due to this that payday loans are the preferred option of those with bad credit. You should take payday loans with abundant caution and only if you are capable of paying it back to avoid becoming trapped in a vicious cycle of loan rollovers and high service charges.

Viable Alternatives to Cash Advances

Creditor negotiation: If you are having trouble in making your monthly payments, you can ask for an extension that you can use to recover your financial balance. This also avoids a negative impact on your credit score.

Salary advance: In a cash crunch, you can request your employer for a salary advance. You are not taking a loan so there’s no interest to bother about, and nothing to pay back.

Family and friends: This is an option you will not want to use unnecessarily, but in a real emergency your family and friends can bail you out.


When you have a sudden need for money, it is best to look at options that can make the money available fast. If for any reason, you are not able to access the required loan, a payday cash advance makes great sense but only if you are confident that you will be able to repay on your next payday and not end up in an expensive debt trap.

Author bio: Mark Hingis is a senior executive of a reputed credit agency. Mark continually scans the personal finance environment, including practices by credit card issuers and payday loans direct lenders.

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