Payday loans are a popular choice for people who need money fast: the money often arrives in your bank account the next business day and can get you out of trouble. The problem is that these loans have stratospherically high-interest rates. This can result in debtors owing much more than they borrowed.
Yet saving money may only get you so far. However much we can help you budget, sometimes life springs horrible surprises on you. Next time you need money fast, take the time to consider payday loan alternatives. Yet what are these alternatives for the quarter of Americans who have bad credit or are underbanked?
We’re here to help learn how you get back on your feet and avoid falling into the cycle of debt and borrowing. Whatever your credit score, there are better alternatives out there than payday loans and you won’t end up paying a huge amount of interest.
Ready to find out more? Then please, keep reading to discover solutions to your financial trouble.
Payday Alternative Loans
Payday alternative loans, or PALs, are one of the best payday loan alternatives out there. A credit union can offer you payday alternative loans which are small, short-term loans with less interest than traditional payday loans.
There are set criteria around what defines a payday alternative loan:
- They can only be offered to people who have been credit union members for at least a month
- They must be between $200 and $1000
- Their interest rate must be no more than 28 percent annually
- The application fee must be no more than $20
- They must be repaid within at least six months
There is also another type of PAL known as a PAL II. These can be up to $2000 and must be repaid within a year.
Whichever type of PAL you go for, they can help to improve your credit score too. Most credit unions report repayments to credit bureaus, so a PAL could be a great way to build good credit too.
If you’re not familiar with credit unions, they are an alternative to banks that are owned by their members. Their main goal is to help make their members more financially independent. If you aren’t a member of one and might need financial help soon, we’d recommend taking a look at this list to find one that’s right for you.
Ask For An Extension On Bills
Bills are one of the biggest drains on our collective finances. The average American in a larger city spends $984 on bills every month. If you’re using payday loans to pay bills, stop.
Many utility companies will be happy to help you put a payment plan together, changing monthly payments to take a missed month into account. Even if they don’t offer this, they may be able to give you an extension of a month, giving you more time to get the money together for your bills.
You may be able to get an extension on your mortgage repayments too. If you’re renting, your landlord may or may not allow you to pay the rent later then planned. This will vary between different landlords. It’s worth asking, however.
Borrowing From Family and Friends
Don’t be afraid to borrow money from your friends and family. Avoiding payday lenders and reaching out to those who care about you can be a great strategy. A lot of people feel that asking for money from their loved ones is a sign of weakness, but that’s far from the truth.
Many middle-class and working-class Americans are not in the best financial health. No matter how things appear on the surface, financial difficulties can happen to anyone. Your loved ones do not want to see you suffer and may well be able to help you out during these times.
The truth of the matter is that borrowing a few hundred from family and friends means you don’t have to worry about interest and you don’t need to worry about debts affecting your credit rating. In some cases, your loved ones won’t expect any more money back than they lent you.
While not everyone will have friends or family who can lend money, it’s a great option if you do.
Take Care of Existing Debts
If you have several loans already and that’s what is causing you to struggle with money, there are numerous options out there that can help make your life easier.
Are your debts spread out making it hard to keep track of payments? Are you constantly paying out money on different due dates, leaving you with little money at the end of the month? Then debt consolidation loans could help you, without having to search for payday loan alternatives.
Debt consolidation loans can be used to pay off your other debts and roll your debt into one package. These kinds of loans often have lower interest rates than your current loans.
There is also often an origination fee that increases your debt slightly. However, these services can make your debts a lot more manageable.
Credit counselors are a fantastic alternative to payday loans. If you’ve got a lot of different debts, a credit counselor helps to collect all your debts into one place. You pay them a monthly lump sum and this goes towards paying off your debt through a debt management plan.
Some fees come with a debt management plan but they can also lower your interest rates and help to keep your payments more manageable.
Creating an Emergency Fund
If you are not currently using payday loans but fear that you may have to in the future, create an emergency fund to help support you during tougher times. This collection of savings should, ultimately, cover six months of expenses if you are unable to work and pay your bills.
However, anything is better than nothing. If you only have a few hundred dollars in your emergency fund, that’s a few hundred dollars that you won’t need to borrow from payday lenders. It could be enough to stop you from having to study payday loan alternatives altogether.
To create your emergency fund if you are living paycheck from paycheck, you’ll need to set strict saving targets for yourself. To achieve these, you’ll need to cut back on expenses. You could avoid eating out, unnecessary travel, and cut a gym membership to start running around your neighborhood instead.
It may not sound like an appealing proposition, but being in debt is a worse one. Once you have six months’ worth of expenses saved up, you can start getting back to your old expense habits. Everyone should have an emergency fund of some kind, but few American families have enough.
If you are not in debt currently, start saving now.
Use Your Credit Card
Do you have a credit card? If you do, you could consider using your card. As with the other payday loan alternatives mentioned on this page, this should be done with caution, as not paying off your credit card bills can be very damaging to your credit rating.
Credit card interest is typically around 21% APR, making it a much more attractive proposition than payday loans. If you don’t have a credit card but do have a solid credit score, you could apply for one today. Even if you do have bad credit, there are credit cards out there that specialize in helping those with bad credit histories.
If you need to or want to pay off debts with cash, you could use a credit card cash advance. This is a feature on some credit cards that let you withdraw funds from an ATM. A cash advance can help make certain payments, but you’ll need to stay on top of your credit card debt.
Apply For Personal Loans
Personal loans can be used to pay off debts in a more manageable way than payday loans. Unlike payday loans, personal loans are borrowed from a bank or credit union and have a set loan term. These kinds of installment loans can also improve your credit score if you keep up with payments.
There are interest rates on personal loans but they are not as high as on payday loans. You can expect to pay an APR of around 10% on most personal loans. This is not a commitment to be taken lightly but they are a much better alternative to payday loans.
You will need decent credit to get a personal loan. If you need a loan, visit your bank and see what financing options are available to you at your current credit rating. Of all the loan options that you could use, these may be your best bet other than PALs.
Ask For a Cash Advance From Work
Employers understand that their employees may face financial difficulties at some point. If you have a good relationship with your boss and your company as a whole, consider asking for a cash advance. This could be a portion of next month’s paycheck or your entire paycheck a month early.
There is no interest to be paid, as it will be deducted from your next paycheck. Your employers do not want you to be unable to work for them due to financial problems. In this case, your work is effectively the collateral.
While not every employer will be happy to give you a cash advance, some would. As with families and friends, it is worth asking. The worst thing that can happen is that they’ll turn you down.
Borrow From a Retirement Plan
Do you have a 401K or other kind of retirement plan set up? If you are in dire straits, borrowing from this can help you. Any money you take out of your retirement plan will not need to be paid back but you will need to pay income taxes on it.
While this is better than payday loans, you should try and make sure that you pay the amount back into your retirement plan when you’re better off. You do not want today’s financial issues coming back to haunt you when you’re retired and don’t have a steady income.
Use Online Lenders
If you’ve not got good credit but none of these other options are viable, you could use an online lender. These short-term loans tend to have higher interest rates than personal loans but not as crippling as payday lenders’ rates.
There is a huge range of online lenders out there and some of them do not need credit checks. Some options include RISE, OppLoans, and Lending Club.
The last of these is what is known as a peer-to-peer lender. These connect debtors with investors who can lend them money at lower interest rates than payday lenders. You can also typically pay off these loans early if you would like.
Find Local Hardship Programs
Many churches and charities like The Salvation Army-run hardship programs to help people out. These organizations can grant you money without it being paid back in some cases, while others will charge you interest at a low rate.
You should contact your local churches, charities, and government to find out what hardship programs are available to you. Even if they cannot lend you money, they may be able to help you save money with food banks and other resources.
Payday loan alternatives can be difficult to find at times but they are out there. Taking a payday loan is a terrible idea under any circumstances. If you are in dire need of cash, we recommend pursuing all of these avenues first before you think about taking out a payday loan at a sky-high interest rate.
For more information on loans and debt, we recommend taking a look at our loans section.