Payday loans are small, short-term loans that usually come due on your next payday. They’re usually for $500 or less and don’t require a credit check. But the interest rates are exorbitant, with an average annual percentage rate of 391%. Most lenders require you to give them either a post-dated check or access to your bank account for repayment.
If you can’t afford to repay your loan when it’s due, many lenders allow you to roll over the loan for an additional fee. Multiple rollovers could lead you to pay more in fees than you originally borrowed and leave you stuck in a cycle of debt.
9 payday loan alternatives to consider
These payday loan alternatives carry significantly lower APRs than regular payday loans. Most provide quick access to cash and are available even if you have bad credit (a credit score in the high 500s or lower).
Payday Alternative Loan from a credit union
These small-dollar loans are among the most affordable payday loan alternatives. While many payday lenders charge APRs of nearly 400%, Payday Alternative Loans have a maximum APR of 28%, which may include an application fee that’s capped at $20.
You may need to be a credit union member for at least a month to be eligible. Each credit union can set additional approval requirements, but because PALs are meant to be a payday loan alternative, you may qualify if you have bad credit or a thin credit file.
You can only have up to three PALs within a six-month period. You can’t have more than one loan at a time or roll over the loan.
Small-dollar loans from a bank
You’ll usually pay a flat fee for a small-dollar bank loan. For example, a U.S. Bank Simple Loan charges $6 for every $100 borrowed up to $1,000 and requires customers to repay the loan in three monthly installments. Though the APRs tend to be higher than typical personal loan rates, they’re still about 15 times cheaper than the average payday loan.
Personal loan for bad credit
Pawnshop loans are an expensive way to borrow money, with an average APR of 200%, but they’re still cheaper than most payday loans. One advantage, though, is that you’re not legally obligated to repay a pawnshop loan. If you don’t pay off your balance by the due date, the broker will sell your collateral, but you won’t be sued or have your account sent to debt collectors.
Still, due to the high cost and risk of losing your property, pawnshop loans should be reserved for emergencies when you don’t have a cheaper payday loan alternative.
🤓 Nerdy Tip
If you have an item that you don’t mind parting with, consider selling it to a third party instead of pawning it. Selling the item may take a bit more time, but you’ll likely fetch more than you would from a pawnshop loan.
Borrowing money from family can complicate the relationship, though. Be honest about why you need the money and what a realistic repayment timeline looks like. To avoid misunderstandings, it’s often helpful to put the details in a written agreement that you both sign.
🤓 Nerdy Tip
If a family loan exceeds $10,000, your loved one is generally required to report it to the IRS and charge you interest.
You may be able to work out a payment plan with your creditors if you can’t make your payment. If possible, reach out before you’ve missed a payment and explain your financial situation. Some credit card companies and lenders have hardship programs that let you temporarily skip or reduce payments, have late fees waived or lower your interest rate.
You’ll typically need to provide proof of hardship, and approval is on a case-by-case basis. Keep in mind that these programs are temporary and aren’t a long-term fix if you can’t afford your bills.
How to get out of payday loan debt
Getting out of payday loan debt can be challenging, but it’s not impossible. Here are some options to consider:
Ask for an extension. Payday loans are typically due in a single payment, but you may be able to extend your loan into multiple installments, depending on your state’s law and the lender’s policy. An extended repayment plan may be free, or you may be charged a fee.
Negotiate with your lender. You may be able to negotiate an agreement to pay less than you owe to your lender if you’re able to repay part of the loan. Though some companies offer to negotiate with lenders for a fee, you can contact your lender directly to work out an agreement. If your lender agrees to settle for less than you owe, be sure to get the details of the arrangement in writing before you make a payment.
Ways to avoid payday loans in the future
Even if you’ve turned to payday loans in the past, you can avoid them in the future by following these steps:
Start an emergency fund. Try to find some room in your budget to build an emergency fund. Even $10 a week will add up to $500 in less than a year, providing you with a valuable payday loan alternative in the future. Consider setting up automatic transfers to a savings account to make things easier.
Join a credit union. Credit unions tend to have more flexible lending requirements than major banks. They’re more likely to work with members who have bad credit because they consider your membership history in addition to credit factors. Because you need time to build history, don’t wait until you’re in need of a payday loan alternative to join.
