Why you should avoid payday loans—and what to do instead

Short-term and payday lenders make promises of “fast cash,” “guaranteed approval” and no “credit check required.”

If you ever find yourself in an emergency where you need some extra money fast, a payday loan might seem like your only option.

But these loans can be outrageously expensive.

And they’re targeted at people who are in a tight spot to begin with, which makes these businesses prime examples of predatory lending.

Before turning to that fast-cash offer, learn how predatory lending works. Then breathe, understand that you have options and make an action plan.

What is predatory lending?

Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower, according to Debt.org.

It’s also any practice that convinces you to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that you don’t need, don’t want or can’t afford.

Predatory lending benefits the lender and ignores or hinders your ability to repay the debt.

Predatory lenders prey on people who need immediate cash for emergencies, such as paying medical bills, covering a home repair or making a car payment. These lenders also target borrowers with lower credit scores or people who have recently lost their jobs.

While predatory lenders’ practices might not always be illegal, they can leave you with ruined credit, burdened with unmanageable debt or homeless.

Predatory lenders go by many names

Pawnbrokers are individuals or businesses that offer secured loans to people, with personal property items used as collateral.

The word pawn is likely derived from the 15th-century French word pan, meaning pledge or security, and the items pawned to the broker are called pledges, pawns or collateral.

Payday lenders offer payday loans. These are also called payday advances, salary loans, payroll loans, small-dollar loans, short-term loans or cash advance loans.

Payday loans are small, short-term unsecured loans, regardless of whether repayment is linked to your payday.

Prepaid debit cards are typically not considered predatory. But some of these cards have been criticized for their higher-than-average fees.

Why you should avoid payroll cards >

Loan sharks are individuals or groups who offer loans at extremely high-interest rates. The term usually refers to illegal activity but might also refer to predatory lending activities like payday or title loans. Loan sharks sometimes enforce repayment by blackmail or threats of violence.

Predatory lending can also take the form of car loans, sub-prime loans, home equity loans, tax refund anticipation loans or any type of consumer debt.

Common predatory lending practices include:

These practices, either individually or combined, create a cycle of debt that causes severe financial hardship for families and individuals.

You have alternatives

If you face debt, you might feel like these types of lenders are your only option.

But it’s not true.

You have several alternatives to taking out a high-cost loan:

Payment plan with creditors

The best alternative to payday loans is to deal directly with your debt. Working out an extended payment plan with your creditors might allow you to pay off your unpaid bills over a longer period.

Advance from your employer

Your employer might be able to grant you a paycheck advance in an emergency. Because this is an advance and not a loan, there will be no interest.

Credit union loan

Credit unions typically offer affordable, small, short-term loans to members. More than one out of four consumer loans made by Dupaco is a small-dollar loan of $2,500 or less!

Unlike payday loans, these loans give you a real chance to repay with longer payback periods, lower interest rates and installment payments.

Credit education

A free Dupaco Credit History Lesson can help you know and understand your credit score—and create a plan to improve and maintain your score, consolidate debt and pay less.

Learn how a Credit History Lesson works >

Emergency assistance programs

Many community organizations and faith-based groups provide emergency assistance, either directly or through social services programs, for weather-related emergencies.

Cash advance on your credit card

Credit card cash advances, usually offered at an annual percentage rate of 30% or less, are much cheaper than getting a payday loan. Shop around, and don’t assume that you do not qualify for a credit card.

Ultimately, know that you are in control. Take time to explore your options to avoid predatory lenders.