Those who oppose money lender often claim that cheaper paydayloans alternatives exist. Their argument may apply to consumers with sufficient credit to grant the financial flexibility needed to get cheaper short term loans, but for consumers operating under great credit constraints, payday loan companies is a more practical option. USA Today’s recent piece on payday loan alternatives is an additional sad example of the misinformation that poisons the public view. The daily’s suggestions aren’t cheap.
Resource for this article: USA Today pay day alternatives article is misleading by Personal Money Store
Pay day loan alternatives: First try 401(k) loans
Consumers who are serious about payday loan alternatives like 401(k) loans should realize that there could be dire consequences. When 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, there are negatives. For instance, you have to pay it all back before growth can occur, writes The Money Alert. Your retirement savings (a lot more vital today than ever, considering the recessionary economy) can take a big hit. No additional contributions, no employer matching – nothing – unless you repay the borrowed sum first.
Furthermore, your take home pay will shrink during the repayment period, as payroll deductions are commonly used for repayment. Great, but if job loss hits, you are in trouble. Then you’ll only have 60 days to pay every little thing back or the 401(k) loan can be considered an early withdrawal. Think penalties and the possibility of being thrown into a higher tax bracket once you report the amount of the withdrawal penalty as taxable income on your next tax return. Indeed, the sting can be felt. A real option is in fact payday loans, which both the University of Michigan and also the Federal Reserve have shown to be a proven inexpensive option to loan shark use. They’re much a lot more practical for small-scale loans, too.
Credit card cash advances: USA Today’s second bright idea?
USA Today tries again with this pay day loans alternatives idea. While credit card cash til payday can be convenient (credit card companies even send you blank checks in order to use an advance), you will find numerous things that a consumer must keep in mind. To begin with, the cash advance loans APR is multiple percentage points higher than what your credit card company charges for regular purchases. Not only that, but the fee for credit card cash loan at an ATM is even more expensive. This is why reading the terms and conditions of your credit card is a good idea, writes Young Money. Using payday installment loans without pulling out the plastic is a better idea. An short term loans won’t require that you pay back an entire credit card balance before getting to the advance itself.
Banks and credit unions offer small loans
Knowing your credit history is quite significant in this scenario. According to USA Today, bank and credit union small loans are great when you have the credit for them – but numerous people don’t meet the factors. Paycheck loans, on the other hand, are easier to qualify for and enable some consumers to repair credit. USA Today doesn’t tell us this, but payday loans are the real option for credit-constrained consumers.
Citations
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/
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