Payday loans are usually a bad idea because of the outrageous interest rates that come with them. As the CFPB reports, payday loans can feature interest rates as high as 400 or 500 percent. The terms for payday loans also make things brutal — they are usually so short it makes repaying the loan impossible. Thankfully, there are more small-money loan options emerging.
As Marketwatch reports, the first change in the payday loan tide is backed by laws. Four states — Colorado, Hawaii, Ohio and Virginia — have passed laws that keep payday loan costs low and give borrowers longer repayment options. Another recent change came via big banks like Bank of America, Wells Fargo and Truist. The banks are now offering small-money loans based on consumers’ banking, not their credit scores. The loans start as low as $100 with APRs no higher than 36 percent. The repayment periods for these bank loans are also months, not weeks like payday loans. The other dent in payday loans is the flexibility of credit unions. Credit unions offer a wide variety of loans and can customize them easily.
If you’re looking for a small-money loan, consider a bank or credit union before taking a payday loan. You can also try a “buy now, pay later” service, as long as you know you can pay off your balance. Payday loans might seem like a good idea at the time, but remember that in the long run, their cons far outweigh their pros. You’re better off finding an alternative.