Payday lending is illegal and unavailable to consumers in some states. Payday loans usually have very high interest rates and carry risk. As with any loan, consumers should have a clear understanding of the fees, terms and conditions of any payday loan before borrowing.
If you’re in a situation where you need quick access to cash, you have options other than a payday loan. Frugal budgeting, credit counseling and other lending options like installment loans can get you the money you need without the heavy interest payment of a payday loan.
Payday loan alternatives
Payday loans are generally quick and easy to get, making them a tempting choice when you have a pressing financial need and don’t have an emergency fund to draw from. However, payday loans are characterized by high fees, penalties and interest rates that can carry an APR of up to 400 percent. Before you start accumulating more debt than you can handle, consider these alternatives to payday loans.
- Take on additional hours at work
Putting in overtime can be a good way to earn extra cash over a short period of time. If you can spare the time, you may be able to avoid taking out a loan altogether.
- Make extra money from a short-term side job
If you’re unable to take on extra hours at your current place of employment, consider getting a temporary job to help cover your expenses. If you have a reliable car, offering your services as a rideshare driver can be a great way to earn some extra cash in your downtime. You may also want to consider babysitting, tutoring, freelancing or offering a specific skill on a website like Fiverr. If it’s the right time of year, you may be able to find a good seasonal job in the retail industry.
- Have a garage sale
Dig through your closets and gather up items that you’re no longer using, have a garage sale or take nicer items to a local consignment shop or pawn shop. You’ll get some quick cash and clean out your house, win-win!
- Cut some luxuries … even just temporarily!
Let’s do some quick math. How much do you spend every month on cable, eating out, your morning coffee, gym memberships or other everyday luxuries? If there’s anything you can live without, even for just a month or two, you can quickly save a few hundred dollars to cover a small financial need.
- Create a payment plan with creditors
Yep, you can negotiate with creditors. Some creditors will work with you if you contact them directly and explain your hardship. Always try to work out a payment plan before taking out a high-interest rate loan.
- Borrow from friends or family
It can be hard to ask for help, but if you have people in your life who could provide financial assistance, consider taking advantage of it. You could potentially save yourself hundreds of dollars in interest and fees. Treat it seriously and make a plan to pay it back.
- Apply for a personal installment loan
You can apply for installment loans online or in person at lending institutions like local credit unions or banks.
- Look into getting a payday alternative loan (PAL)
Credit unions offer members of at least one month the option to apply for payday alternative loans, or PALs. These are short-term loans in amounts between $200–$1000 with terms of one to six months and application fees no higher than $20. PALs have lower APR than payday loans and are nationally regulated to help prevent borrowers from agreeing to much higher interest payday loans. PALs are regulated by the National Credit Union Administration.
- Request a pay advance from an employer
Some employers will allow you to take an advance out on your pay. Check your employee handbook for the specifics of your company’s policy before you ask your boss. If your request is approved, take the time to assess your finances and make some cuts to your monthly spending to avoid repeating the cycle of coming up short every month.
- Explore community emergency assistance funds
Check with your city to see if they have any emergency relief programs. Many cities have grant programs in place for emergency assistance disaster relief that can cover unexpected costs associated with medical emergencies, damage to property caused by natural disasters and even funeral costs for immediate family members. Some programs are available to any qualifying member of the community, while others are sponsored by employers. There are also programs that target specific groups of people—like those who work in the arts, for example.
- Use a credit card
A credit card cash advance can be paid back over a longer period of time than a payday loan, which is due at the time of your next paycheck. While they also carry high interest rates, a longer repayment term can make it easier to pay back your loan without getting stuck in a cycle of accruing more debt.
- Borrow from your 401k
While it comes with its own share of fees and penalties, borrowing against your 401k can be a better alternative to payday loan because you’re essentially borrowing from yourself. You will have to pay an early-withdrawal fee, generally 10 percent and the amount you withdraw will be taxable.
Installment loans vs. payday loans
Personal installment loans offer several advantages over payday loans. As the name suggests, they offer an installment option for repayment that considers the borrower’s ability to repay within 90 days or longer, versus a typical payday loan repayment plan of 30 days or less. Installment loans also don’t have mandatory arbitration or limits on loan renewals.
|Traditional Payday Loans||Installment Loans|
|Interest rates can reach as high as 400% APR||Fixed interest rate, typically capped at 36% APR|
|Designed to be repaid every payday||Can be repaid in full with pre-set monthly payments over the course of several months|
|Rollovers allowed at each due date, plus additional fees||No rollovers allowed|
Both payday and installment loans are regulated on a state level. Payday loans are prohibited in some states, while installment loans are widely available. To review the differences between the two loan types on a state-by-state level, check out the payday and installment loan state law matrix put together by the Online Lenders Alliance.
How to find a safe payday loan company you can trust
If you have exhausted your options with preventative and alternative measures, a payday loan may be necessary. In this case, be careful when considering your payday loan lender. Stick to payday loan companies who have a demonstrated online reputation and are dedicated to public-facing communication with their clients. Lenders should clearly state their fees and repayment terms up front in language borrowers can understand.
Read about the fees and terms thoroughly, and ask questions to ensure you understand what you’re agreeing to. In some cases, there are extra requirements and qualifications necessary for the loan to be processed or approved.
Once you’ve paid your loan back, consider working with a credit counselor to help you make a plan to maintain your financial health and start saving toward an emergency fund so you’re prepared if unexpected costs come up in the future.
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