Payday loans give the impression that the interest is reasonable but when this interest is converted into annual percentage rates or APR, the interest balloons out considerably. The annual interest of payday loans could be six to eight times the loaned amount. This means that if an amount of $1,500 is borrowed and this loan is not paid for a year, the borrower has a financial obligation to settle a total amount of about $12,000.

The high interest rates of payday loans should be enough to create a knee-jerk reaction when someone gives a name of a payday lender. But there will be times when immediate funds are needed and payday loans beckon like a siren call. There are ways to steer clear of payday loans and here are some suggestions.

When immediate funds are needed, there are other sources of cash or loan that can be tapped into. For an employee, the most obvious source of money is a cash advance from the employer. Most employers are aware that unavoidable circumstances can place an employee in dire need of cash. This is why the concept of cash advance was invented. An employee should look into the employer’s policies regarding cash advances.

Another source of money is a loan from a family member or from a friend. Brothers and sisters may not be the most sympathetic people to approach when one has a financial crisis but they certainly do not charge high interest rates. Social mores also frown upon the idea of borrowing from friends. But friends also do not charge high interest rates.

To make the loan from either family or friend less of a charity and more of a business transaction, create a written agreement about the loan. The agreement need not imitate the legalese of loan contracts. It needs only to indicate the amount loaned and the promised date when the loan will be paid off. In some cases, the written agreement may indicate an extended method of payment in which dates are listed together with the amounts to be paid on those dates.

The other sources of emergency cash can be small loans coming from credit unions or cash advances from credit cards. These loans charge interests but their APR is several times lower than that of payday loans. When considering a cash advance from credit cards, it would be advisable to choose the credit card that imposes the lowest APR on cash advances.

Of course, the best strategy to steer clear of payday loans is to avoid situations in which cash is needed and there is no saved money available. To avoid such situations, there are a number of things that any determined person can do. The first of them is creating a budget in which the expenses should not be higher than the earnings. Spending less is all about living below your means and preventing the self from buying stuff that are not really needed.

Another technique is to set aside savings first before creating a budget. For example, an amount of $50 is placed in savings from every payday. The savings will accumulate and will become the best source of money in times of emergency.

The financial danger of payday loans cannot be overemphasized. A sensible and rational person should consider alternatives to obtaining funds rather than getting a payday loan.