Choosing Safe Personal Loans Over Predatory Payday Loans With Financial Lecturer and Author Ann LoguePicture_3

Okay! We made it out of the jungle of predatory lenders, now let’s learn more about borrowing safely and responsibly. For professional advice, we turned to financial expert and business writer Ann Logue (@AnnieLogue).

1. Ann, what is a personal installment loan?  

A personal installment loan is unsecured, meaning that it’s backed by your willingness and ability to repay it and not by hard assets like a car or furniture. That’s why the interest rate is higher than the interest rate on a car loan or a consumer loan. Each payment includes both principal and interest, though, so your dollar cost of the loan will go down over time as you pay it off. This makes them safer alternatives than payday or title loans. In addition, many of these lenders report to credit bureaus, so paying off an installment loan can help you build your credit rating.

2. What about borrowing from friends and family. Is this an option you recommend?

If you’re in a jam, your friends and family may be willing to help. It’s worth asking them, especially if you have a history of being responsible. They may give you the money as a gift or allow you to work off the obligation, too–so ask if it is near a major holiday or if you have a skill that can help your relative. Otherwise, make sure that you have an agreement in writing about when payments are due and how much interest will be charged. Then, stick to it! You do not want to lose a relationship over money. (I have helped people on occasion, and I always specify that the money is a gift because I don’t want repayment to become an issue in our relationship. That also means I don’t give any more money than I can afford to miss).

3. What about payday alternative loans? Are these safe? Are there any drawbacks?

Many credit unions and community banks offer payday alternative loans. These are similar to a traditional payday loan: you receive a small, short-term loan to pay back on payday. The big advantage is that payday alternative loans have much lower interest rates and fees than traditional payday loans. The catch is that you already have to be a customer at the institution that offers them. Still, it’s a benefit that many of the big banks don’t offer, so it might be worth checking out a bank that offers these the next time you are shopping for a new bank.

4. And finally, what about paycheck advances? How do these work?

Some employers will allow employees to get all or part of their paycheck in advance. This is a great alternative to a payday loan, in part because the tax code doesn’t allow employers to make a profit from these. That means the interest rate is much lower than the rate available somewhere else. However, not many companies offer it. Those that do have policies in place for how to request the funds. They will probably limit how many times a year you are allowed to receive a payroll advance, too.

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