Types of non-bank loans

It may seem that getting a loan from a bank is time consuming, and it's certainly not free, but bank loans are better than the alternatives that are out there. Even if these alternatives seem better on the surface, they will usually end up costing you much more in the end.  If you can't repay the loan most payday lenders will “rollover” or renew the loan – but then they charge you a second fee. This can get very expensive. The followings are the non-bank alternatives;

Refund Anticipation

A refund anticipation loan is a short-tem loan that you can obtain from the company that prepares your tax return.  Tax preparation companies have lots of fees that can make the costs of this loan quite expensive.  Their costs might include; tax preparation fee; loan application fee; electronic filling fee; document handling fee.  That adds up! And makes for a costly loan!

Refund Equation

Let's say your refund will be $1,500 and the company is charging you $300 to prepare your return and cover the cost of the loan. You will only receive $1,200 of your $1,500 refund. The APR for this loan would be over 400%. Plus, you are legally responsible for repaying the total amount of the loan. So, if your actual refund turns out to be less than the loan amount, you will still have to pay the rest of the cost. So, if you only receive an $800 refund instead of the $1,500 you expected, you still owe an additional $700, plus fees and interest. The costs of the original loan do not change.

Rent to Own

A rent-to-own service allows you to use an item, like a stereo system, for a period of time by making weekly or monthly payments.  If you want to purchase the item, the store sets up a payment plan for you to follow until you own it. The stereo system still belongs to the store while you're making payments, so if you miss one, they can take it back, and you won't get any money back. Rent-to-own services are not loans, so they don't have interest. However, the cash price you'd pay for the item if you bought it outright and the payments you end up making through the agreement are like interest you pay on a loan. And, rent-to-own services usually charge you more in payments than banks do in interest.

Payday Loan

A payday loan is where you borrow money from a lender for 2 weeks that you expect to repay with your next paycheck.  You give the lender a postdated check for the loan plus the fee.  When you receive your paycheck, the lender cashes your postdated check.  Or, you can give the lender cash.  There are a couple of problems with this type of loan, too