7 Payday Loan Alternatives
Do you need cash now? If you are short on funds and crunched for time, getting a payday loan may seem like the only option.
Unfortunately, taking out a payday loan could end up hurting you. Many charge exorbitant interest rates (upwards of 300%), which will cost you a lot of money over time.
Luckily, using a payday loan isn’t the only option for paying past-due bills or overdue debt. Whether you try negotiating, set up a payment plan, use a paycheck advance app, or use another strategy, there are many payday loan alternatives worth looking into.
Alternatives to Payday Loans
Here are seven payday loan alternatives that can help you keep more money in your pocket and protect your finances.
1. Negotiate Your Debt Payments
If your debt is past due or in collections, you may feel pressured to send a payment ASAP. Before you rush to get a loan, try negotiating with your debtors first.
It’s important to remember that all payments are negotiable, so start by calling your debtors and explaining your situation. Let them know you would like to make a payment, and let them know what you can afford.
Don’t let them threaten you into sending a larger payment. Instead, work with them to find a payment amount that fits your financial situation. Always get the agreement in writing from them before making a payment.
If your debts or past due bills are not in collections, follow the same process:
- Stay in communication with your debtors
- Set boundaries on what you can and can’t do
- Get any agreement in writing before making any payments
These steps can help you avoid payday loans and pay off your debts.
2. Establish a Payment Plan
If you are past due on your bills or have medical debt or tax debt, setting up a payment plan can alleviate the need for a payday loan. Most creditors are willing to work out an installment plan to help you “catch up” on your bills or start paying down what you owe.
For example, most hospital billing departments are willing to help you set up a payment plan. Many of these payment plans do not charge additional interest and will help protect your credit as well.
For past due bills like utilities, follow the same procedure. Call and ask if they have a “budget plan” to help get a more steady bill, and ask them what your payment options are to catch up instead of having them shut off.
Payment plans can be one of the most helpful payday loan alternatives to help keep your life moving while avoiding crazy interest rates.
3. Home Equity Loan
If you own a home with equity, opening a home equity loan may be a quick way to free up some cash. This can typically be done at the same bank you have your mortgage with or at a local bank.
A home equity loan can help you make past-due payments. It can also give you a lower interest rate than payday loans or credit cards.
While getting a home equity loan is not instant, you can negotiate with your debtors and let them know a payment is coming soon. This can help pause any upcoming collections lawsuits or outrageous fees.
Keep in mind that this is one of the payday loan alternatives that has some risk. Borrowing against your home carries some financial dangers since not being able to pay off a home equity loan can put your house at risk.
Make sure you understand the terms and details of a home equity loan before using this option.
Note: This requires a decent credit score (usually 620+) and the ability to make the payments on the loan.
4. Local Credit Union Loan
If you are a member of a local credit union and in good standing with them, you may be able to borrow from them without paying 100%+ in interest like a payday loan.
Credit unions are typically member-owned, which means they are more concerned with helping members than padding their bottom line.
If your credit score is decent, you may be able to take out a personal loan with a reasonable interest rate (30% or less) to help you catch up on bills or debt payments.
This process is not instant. However, if you can wait a few days, you can save money in the long run.
Credit unions may also offer a payday loan option where you can borrow a small some on the same day. Better yet, the interest rates they offer are typically lower than what you’ll get with a payday loan company.
5. Bad-Credit Loan
If you have bad credit, you may think that your only option is a payday loan. Fortunately, there are services available that will make personal loans to those with lower credit scores. The interest rates aren’t great (typically 30% – 99%), but they are far better than the 300%+ that a payday loan will cost you.
Online lenders that focus on bad-credit borrowers offer loans to those with a high debt-to-income ratio or a fair to low credit score. Many of the loans can be approved on the same day.
For example, Monevo is a marketplace that helps borrowers find the best rates on all types of loans. They also help those with bad credit find the best rates available for personal loans.
You can plug in your desired loan amount, the purpose of the loan, and estimated credit score. Then, Monevo will show you what your loan options are.
Many of these loans may still have very high interest rates. But, compared to a payday loan, the rates might be much cheaper.
As with anything, make sure to read through the fine print so you don’t get hit with any extra fees (like a prepayment penalty).
Also, remember that this is still a loan that will need to be repaid. It can hurt your credit score (and your wallet) if you are unable to make payments. Make sure you understand all the terms and conditions before applying.
6. Borrow From Friends or Family
This is not an ideal option, but borrowing money from friends or family may help you get out of a tight spot.
Whether you just need some cash to make it to payday or need a longer-term loan to take care of debt or past-due bills, this could help you save a lot of money in interest payments.
This type of borrowing may not risk your bank account. That said, it can put a strain on your relationships, so make sure to tread lightly.
To help keep things from getting too uncomfortable, it’s always best to write up a formal contract. Make sure it outlines:
- How much you’re borrowing
- When you will pay it back
- How it will be used
- Any interest that may be included
Having a contract can help avoid confusion and ensure everyone is on the same page.
7. Consider a Paycheck Advance App
Getting an advance on your paycheck may be another option to avoid payday loans. Apps like Earnin offer payday loan alternatives that allow users to borrow up to $500 that will be paid back when their next paycheck arrives.
Typically, a paycheck advance service will confirm some personal details about you and your employment. The service may then give you the option to borrow up to $500 instantly.
These types of services typically charge little to no interest and might ask for tips instead. But be wary. If you can’t afford to pay your loan back, it could be costly.
Also, the “tips” or included fees may still cost you quite a bit. Make sure to understand the terms and details of the paycheck advance before signing up.
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