Payday loans are arguably the worst type of loan in America. These high-interest loans often charge rates into the hundreds of percentage points per year.
A review of payday loan interest rates by the Center for Responsible Lending found six states with average rates over 600% APR. The lowest average interest rate for this type of loan was still 154%, more than five times what you pay with the worst credit cards.
When you’re in a pinch, payday loans may seem the only option. But there’s good news. There are several alternatives that can help you without breaking the bank. There are some personal loan options that may offer higher interest rates but nothing like you’d pay with a payday loan. You can also work out payment plans with your creditors, ask for an advance on your paycheck, or check with credit unions for your loan options.
Here are a few things to try before resorting to a payday loan.
Apply for a bad credit loan
Another alternative to payday loans, personal loans allow you to borrow with rates that are typically much lower than a payday loan. While payday loans charge an average of around 400%, personal loans cost around 10% to 40% depending on your credit.
Definitely don’t take a loan at 35% lightly, but it is a heck of a lot better than 350%.
Here are a couple of alternatives that are great to consider if you’ve exhausted lenders with lower rates and stricter qualification requirements:
OppLoans specializes in helping the 60 million Americans who can’t get access to credit. Although interest rates are higher than what will be offered once your score improves, OppLoans tops out at 199% APR, with loans offered at rates as low as 99%.
With OppLoans, you can take out a loan for between $500 and $4,000, with terms of up to 36 months. But the best thing about OppLoans is that you’ll be building credit as you make payments. OppLoans reports your payments to all three credit bureaus, so as long as you’re paying on time each month, you’ll be working toward a better score.
Another option is to go through a site that shops multiple lenders to help you find the best rate. Monevo is just that type of site, but unlike other aggregators, this one includes quotes from lenders that accept borrowers with lower credit scores.
The quote process takes minutes and can be done entirely on the Monevo website. Simply choose your desired loan amount, your loan purpose, and your estimated credit score from the drop-down boxes and select Start my free search from the main page. You’ll need to provide some more basic details like your contact information and income to help interest lenders decide what rate to quote.
Work out a payment plan
One more place to check before rushing out and borrowing is where you owe money to. If you are in the market for a payday loan, chances are you are trying to cover rent, utilities, or other bills. Perhaps that biller would be willing to work with you for a payment plan.
If you can pay a small amount per month instead of a lump payment, the debt or bill could be more manageable. The worst thing that will happen if you ask is they say no. In the best case, you can avoid a payday loan and the terrible interest rate that comes with it.
Getting an advance on your paycheck
An excellent alternative to payday loans is the emerging industry of apps providing early access to earned wages.
Companies like Earnin are popular providers of these services. And, unlike a payday loan, they don’t charge any interest. Instead of borrowing today and paying back a loan with your next paycheck, Earnin helps you tap into a portion of your current paycheck before payday. The amount is just deducted from your next check.
Earnin is free to use and lets you pay with a tip for what you think is fair.
While not all employers will offer direct advances, some businesses may be willing to offer an advance to employees in limited circumstances. This is essentially getting pre-paid for future work, so it is effectively an interest-free loan from your employer.
Payroll advances may be more affordable, but they are not always an option. Further, you may want to keep financial challenges private from your employer. But if you have a good relationship with your manager, this could be a viable alternative to payday loans.
Credit union alternative loan
Credit unions offer a popular alternative to traditional banks for many reasons. Credit unions are not for profit. That means they are more interested in serving their members than making money.
Credit unions often offer loans and accounts with favorable interest rates and fees compared to banks, and certainly compared to payday lenders.
Many credit unions offer personal loan products, refinancing, and other creative solutions that could help you get quick cash in your pocket. Contact your local credit union or check online to learn more about your options.
What is a payday loan alternative?
Payday loans are known for predatory fees and rates. A payday loan alternative doesn’t have to be another loan. There are many ways to access funds or delay bills that could work for your financial needs. Popular payday loan alternatives include lower-interest loans like credit cards and payday loans. Earned wage access, payment plans, and other alternatives can save you a small fortune compared to a payday loan.
If you are at all able to avoid payday loans, your finances will generally be better off for weeks, months, and years to come.
Millions of Americans are in a tough financial spot where they struggle to cover the bills. Remember that while payday loans may appear to be easy money, paying them back is expensive at best and financially crippling for many borrowers.
Bottom line: payday loans are a bad decision – that’s not uncontested in the personal finance world. So it’s always best to exhaust your other sources for emergency financing.