Opponents of personal loan company tend to argue that there are cheaper pay day loan alternatives accessible. While this does apply to those people who have the credit to have opportunities, those consumers with average to less-than-average credit may discover payday loan store to be a lot more available. USA Today’s recent piece on payday loan alternatives is another sad example of the misinformation that poisons the public view. The newspaper’s musings are something a lot more than cheap.
Payday loan alternatives myth No. 1: 401(k) loans
Applying for 401(k) loans as one of your pay day alternatives could be a terrible idea. While it may seem great to be able to take out $ 50,000 or even half your 401(k) plan at low interest with no credit inquiry, you will find negatives. The Money Alert reports the awful truth: you have to pay it all back before you are able to continue building your nest egg. If you think it is a good idea to hamper your retirement savings during a recession, think again. And don’t forget that employer matching shuts down while you’re repaying.
Furthermore, your take home pay will shrink during the repayment period, as payroll deductions are commonly used for repayment. That may work, unless you lose your job. Then you’ll have to pay it all back in 60 days. Penalties and higher tax brackets due to having to report the withdrawal penalty as taxable income are painful. That’ll cost you. Payday loans, on the other hand, are a proven inexpensive option, according to the University of Michigan and the Federal Reserve. They’re also much better on a small scale than 401(k) loans.
Credit card cash advances: USA Today’s second bright idea?
USA Today strikes out again with this effort at exposing pay day loan alternatives. Credit card cash now seems attractive (with fancy blank checks and all), but you will find major caveats. First, credit card cash loan APRs are always higher than the APR for standard credit card purchases. Then if you have to use your credit card for a cash till payday at an ATM, you can expect to be charged even more. Thus, as Young Money suggests, it is vitally essential to look over terms and conditions of a credit card so you know what you’re getting into, first. If you need money and want payday loans alternatives, try using an installment loan instead. An short term loans won’t require that you pay back an entire credit card balance before getting to the advance itself.
The skinny on bank and credit union small loans
Here’s where a consumer’s credit history comes into play. USA Today trumpets these low-interest short term loans, but spend little time addressing the reality that most consumers don’t qualify. Payday loans are a better alternative, in that that allow credit-constrained consumers to repair credit. Those with less-than-perfect credit should explore the possibility, something the USA Today evidently neglected within the process of researching their story.
Find a lot more data on this topic
USA Today
usatoday.com/money/perfi/columnist/block/2010-06-15-yourmoney15_ST_N.htm
The Money Alert
themoneyalert.com/401kloan.html
Young Money
youngmoney.com/credit_basics/040216_01/
