Payday Loan Alternatives — More Affordable Help
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Payday loans attract many consumers due to their easy requirements and quick access to cash. You don’t need much to get one of these loans. Lenders will only want to see your proof of income, an active bank account, or a valid ID. You may get around the active bank account requirement with a prepaid card.
While these loans are easy to get and don’t have credit score requirements, they are the last resort for many consumers. Although these loans are easy to obtain, their high interest rates and excessive fees make them undesirable. Some borrowers pay more than the loan’s principal in interest payments and fees.
Many consumers value access to money quickly, but only some have the best or can wait too long for their funds. This guide will explore payday loan alternatives so you don’t incur excessive fees and interest rates.
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What are payday loans?
Payday loans are short-term, high-interest loans designed to provide quick cash to borrowers before their next paycheck. Typically ranging from $100 to $1,000, these short-term loans from payday lenders come with extremely high interest rates and fees, often resulting in annual percentage rates (APRs) of several hundred percent. Due to minimal credit checks, payday loans are easily accessible online or at storefronts, offering fast cash with the requirement to repay by the next payday, either through a post-dated check or an authorized bank withdrawal. Because credit history isn’t taken into consideration, people with bad credit can easily attain these loans.
However, the high costs and short repayment periods can lead borrowers into a cycle of debt, prompting additional loans to cover previous ones. While regulations vary by state, some have banned payday loans, while others impose limits on interest rates and fees to protect consumers.
Banks compete, you enjoy low rates
- APR: 6.99% - 35.99%
- Loan Term: 12-144 months
- Credit Score: Poor, Fair, Good, Excellent
Payday alternative loans
Cash advance apps
Cash advance apps can help you receive extra cash at 0% APR. These apps give you the same level of quick access as payday loans, but most only limit you to a few hundred dollars.
Cash advance apps connect to your bank account, and you can use your next paycheck to repay the cash advance. While some cash advance apps let you get up to $500 at 0% APR, you have to use the app for several months and have good banking activity to get the maximum cash advance.
Although cash advance apps charge 0% APR, you can still expect fees. Some cash advance apps are more generous with their fees than others. The fee is similar to an interest rate, but you will save money with cash advance apps compared to payday loans. However, if you want to borrow more than $500, you’re likely out of luck if you rely on cash advance apps.
Personal loans
Some banks have stringent requirements for obtaining a personal loan. These lenders may require a 700 credit score or higher. If you don’t have that credit score, you still have many avenues for obtaining a personal loan.
You can get a personal loan even if you do not have the best credit score. Some lenders have more generous requirements, making it easier to access funds.
It can take up to a week to receive your personal loan. However, online lenders can give you the cash in at least 24 hours. Same-day funding is more prevalent online, and you can get far better rates and terms with these loans than with payday loans.
Personal loans give you the incentive to build your credit, and on-time payments for these loans will improve your credit score in the future. While lenders assign interest rates, you can select a loan duration that matches your monthly budget. Taking out a lengthier loan will result in lower monthly payments.
Friends and family
You can borrow money from friends and family to cover financial obligations. While this strategy can help you secure the best terms and repayment plan, paying your family and friends back is important.
Some people take advantage of this setup and forget to pay back the provider. Taking this approach can damage relationships. Borrowers in this situation need to respect the fact that their family members and friends are offering help during a desperate time or to cover a large expense.
You don’t have to ask your family and friends for money to get your desired financing. If you know a friend or family member with good credit, you can ask them to co-sign your loan. Co-signers become legally responsible for paying off the loan if the borrower falls behind.
While this approach increases the co-signer’s risk, lenders will assess the co-signer’s credit when assessing your application. Lenders may give you access to more loans, higher amounts, and lower interest rates if your family member or friend becomes a co-signer.
It’s important to consider the risks the co-signer bears if you cannot make the monthly loan payments. You should outline how to repay the loan so the co-signer feels more eager to help you.
Payment plans
Some companies allow you to buy critical goods and services through payment plans. Making four monthly payments of $100 instead of $400 today can save some people from taking out payday loans.
Payment plans are becoming more popular with “Buy Now, Pay Later” corporations like Affirm leading the charge. You can break a single purchase into four monthly payments. You can free up more space in your budget while accessing valuable goods and services.
One flaw with the BNPL model is that the monthly expenses can catch people by surprise. The subscriptions can make it more difficult to avoid everyday items since you start each month with less room in your budget.
BNPL programs offer short-term relief, but you need a way to cover the incoming expenses while managing your other costs. The main advantage of BNPL plans is that they give you extra time, and you can avoid interest payments and fees if you pay off your mini loans on time.
Lending circles
Lending circle websites connect people who need money with investors. You can borrow a few hundred dollars from these websites and decide on the interest rate and terms. A higher interest rate and attractive terms will attract more investors and lead to more capital coming your way.
Lending circles are great for short-term expenses and emergencies. These loans are more affordable than payday loans. You can also learn how these platforms work and decide whether to invest in other people’s loans and receive interest.
Some lending circles have credit score requirements and other criteria for borrowers. It’s important to compare lending circles to see which one is right for you.
Pawn loans
If you have extra goods, you can take them to a pawnshop and get a loan. The items become collateral, and the pawnshop will hold onto them until you repay the loan. You can pawn off jewelry, TV sets, and other items to receive extra cash.
Pawnshops are usually a quicker source of funding than selling the goods yourself. However, consider selling your clutter on eBay if you have extra clutter. You might receive more cash by selling on eBay, and you won’t have to worry about interest rates and fees. However, selling something on eBay and receiving cash can take longer than reaching out to a nearby pawnshop.
Banks compete, you enjoy low rates
- APR: 6.99% - 35.99%
- Loan Term: 12-144 months
- Credit Score: Poor, Fair, Good, Excellent
Side hustles
Side hustles aren’t a quick path to cash. You have to put in extra hours outside your regular job and figure out which ones make sense. You can receive money within a day if you pick the right side hustle.
While some side shuttles offer short-term cash to help you avoid payday loans, other side hustles can become full-time income streams. Many payday loan alternatives focus on helping you access extra cash while paying lower fees and obtaining lower rates. The best long-term path to avoid payday loans is to grow your income through side hustles and career advancement.
Developing new skills gives you more choices and can make ambitious long-term financial goals feel within reach. A year of focused effort on the right side hustle can make a meaningful difference in your income. Even if you still need loans, you can use that extra income to qualify for lower interest rates and higher loan amounts.
Credit card cash advances
Credit card advances provide quick access to cash, but they come with high interest rates and fees. You can withdraw cash using your credit card at an ATM or bank, with the amount added to your card balance.
While convenient for emergencies, credit card advances should be used sparingly due to their cost. Interest starts accruing immediately, unlike regular credit card purchases that have a grace period. Additionally, cash advance fees typically range from 3% to 5% of the transaction amount.
Despite the drawbacks, credit card advances can be a better alternative to payday loans. They offer lower interest rates than payday lenders and more flexible repayment terms. However, to avoid high costs, it's essential to pay off the advance as quickly as possible.
Using credit card advances wisely can help manage short-term financial needs without resorting to high-cost payday loans. It's also important to monitor your credit report, as high utilization of credit can affect your credit score and future borrowing options.
Credit unions
Credit unions offer a reliable and cost-effective alternative to payday loans. As member-owned financial institutions, they typically provide lower interest rates and fees compared to traditional banks and payday lenders. Joining a credit union requires membership, which often involves meeting certain criteria based on your location, employer, or association.
Credit unions offer various borrowing options, including personal loans and small loans, with more favorable terms. These loans come with lower interest charges, longer repayment periods, and no hidden fees, making them a more manageable option for borrowers.
One of the key benefits of borrowing from a credit union is the personalized service and financial assistance they provide. Credit unions often offer financial counseling and educational resources to help members improve their credit history and financial health. This support can be invaluable in building a strong credit report, which can lead to better borrowing options and lower interest rates in the future.
Credit unions also tend to be more flexible with their lending criteria, making it easier for individuals with less-than-perfect credit to obtain a loan. By focusing on the member’s overall financial picture rather than just their credit score, credit unions can offer more tailored and accessible financial solutions.
FAQs
Which alternative to a payday loan is the best?
The best alternative depends on your specific financial situation and needs. Personal loans and installment loans are generally the most cost-effective options due to their lower interest rates and manageable repayment terms. Paycheck advances can be a good short-term solution, and local assistance programs can provide support without high costs.
How can I improve my financial situation to avoid needing payday loans?
To avoid needing a payday loan, consider building an emergency fund, creating a budget to manage expenses, and seeking financial counseling if needed. Additionally, exploring alternative lending options and improving your credit score can provide access to more affordable borrowing solutions.
Are payday loans regulated?
Yes, payday loans are regulated at the state level in the United States. Regulations vary widely, with some states banning payday loans entirely and others setting limits on interest rates, fees, and loan amounts to protect consumers.
Can I get a refund for a payday loan if I change my mind?
Policies vary by lender and state regulations. Some lenders may allow you to cancel the loan within a certain period, typically 24 to 48 hours, without penalty. Check with your lender for their specific refund policy.
What should I do if I'm struggling to repay a payday loan?
If you're struggling to repay a payday loan, contact your lender to discuss your options. They may offer an extended repayment plan. You can also seek assistance from credit counseling agencies that can help you manage your debt and explore alternative solutions.
Banks compete, you enjoy low rates
- APR: 6.99% - 35.99%
- Loan Term: 12-144 months
- Credit Score: Poor, Fair, Good, Excellent
The bottom line
Payday loans help low-credit borrowers who need money quickly, but that’s where the benefits end. The disadvantages of payday loans overwhelm the small advantages of these financial products. Consumers can choose from several alternatives instead of resorting to payday loans.
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Writer
Marc Guberti is a business freelance writer who specializes in personal finance, digital marketing, and entrepreneurship. His award-winning book "Content Marketing Secrets" teaches readers how to create, promote and optimize content for growth and revenue. Marc also hosts the "Breakthrough Success Podcast," where listeners learn how to master content marketing and get more clients.
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