12 Alternatives to Payday Loans

According to NBC News, there are more payday lenders in America than there are McDonald’s restaurants. With 20,000 locations across the country, chances are you have a payday loan storefront in your area. When times are tough, you may be tempted to run to the nearest payday lender and request a loan. Since these loans are notorious for charging exuberant fees with quick repayment dates, they are less than ideal. Instead, take a deep breath and consider one of the following 12 payday loan alternatives.

1) Local charities

It’s worth taking the time to reach out to local charities, including churches, if you have a pressing financial need. Churches often have benevolence funds set up specifically to meet the needs of the community. They are ready to help with medical bills, late utilities, groceries, and in some cases, transportation. Catholic Charities is another excellent organization to contact. You don’t have to be Catholic to get help, and the organization is set up with multiple programs to assist those in need.

2) Paycheck advance

If you’ve been with the same company for a few years, ask your boss for a paycheck advance. If approved, you may get the same amount as you would with a payday loan, but without the interest fees. It’s important to note that you shouldn’t go with this option if you’ve just started a new job. It’s best for employees who have already established themselves as hard workers that are valuable to the company.

3) Payment plan

Companies are often willing to negotiate and create new payment plans for their customers, even though they don’t advertise this as an option. Whether you’re behind on an electric bill or a car payment, you can contact the company to make a new arrangement. Some utility companies can put you on a special payment plan, as well as direct you toward any local energy assistance programs. An auto loan lender may be willing to allow you to skip a month by taking that payment on to the end of the loan. You won’t know unless you ask.

4) Personal loan

The Federal Reserve listed 9.5% as the average interest rate for a personal loan in May of 2020. If you already have a relationship with a bank in your area, try applying for a small personal loan to help you get through your difficult time.

5) Payday Alternative Loan

If you have an account with a federal credit union, you can actually apply for a payday alternative loan (PALs I and PALs II). The PALs I requires individuals to have been a member of the credit union for a period of one month, while the PALs II loan is available immediately after membership has been granted. Loan amounts range between $1 and $2,000 and are due to be repaid in installments over a period of one to 12 months. Interest rates are capped at 28%, which is far cheaper than a 391% payday loan APR.

6) OppLoans

OppLoans provides personal loans to individuals with less than perfect credit. They operate entirely online in 37 different states. While their interest rates are high (between 99% and 199%), payments are spread out over several months, unlike payday loans. This makes it easier to repay the loan without having to take on more debt later on. Since the loan is classified as a personal loan, the funds can be used on just about anything, including vacation expenses and wedding costs.

7) Credit card cash advance

Credit card cash advances certainly aren’t ideal, but they are far better than taking out a payday loan. The Citi Simplicity card has a 25.24% APR for its cash advances, while the Discover it card charges a 24.99% APR for the same service. It’s important to always check your credit card’s cardholder agreement, as some cards tack a fee on to the cash advance. Most also put a cap on how much of your credit card limit can be used toward a cash advance. For example, you may have a $10,000 credit card limit, but they company may only allow you to use $2,000 of it for a cash advance.  

8) Peer-to-Peer lending

If you aren’t having any luck with a traditional back or lending institution, you’ll want to give peer-to-peer lending a try. This method allows you to request a loan from another individual. You’ll make a proposal that includes the reason you need the loan. If the proposal is accepted, you’ll need to agree to the lender’s terms. You can expect the interest rates to exceed those of a personal bank, but not jump as high as a payday loan. A few popular peer-to-peer lending companies include Peerform, LendingClub, Upstart, Prosper, and Funding Circle.

9) 401(k) loan

Should your boss be reluctant to grant you a paycheck advance, you can borrow from your 401(k). As long as you make the scheduled payments and fully repay the loan within the designated time period, you won’t have to pay any taxes on the withdrawal. Keep in mind though, that if you leave your place of employment, the entire amount of the loan that you have remaining will come due.

10) Side hustle

Instead of looking for ways to borrow money that will further increase your debt, consider taking on a temporary side hustle until you have enough money to cover your shortfall. You can mow lawns on the weekends, babysit in the evenings or rent out your car on your day off. A few other options include selling unwanted items, cleaning a few houses, and pet sitting.

11) Credit counseling

Sometimes it’s helpful to have an outsider take a look at your finances. Many banks and credit unions offer free credit counseling to their clients. If your financial institution has this service, sign up for it. The counselor can help you create a budget that includes cutting back on unnecessary expenses and provide you with a plan for repaying any debts. They can also negotiate lower interest rates on the loans you currently have, which can save you big over the course of several years.

12) Family and friends

While it can be hard to sit down and ask your friends or family members for a loan, it’s a good idea when you’re in a pinch. They won’t charge you interest and are more likely to come up with a repayment plan that works with your budget.