Millions of Americans are in a tough financial spot where they struggle to cover the bills. But while payday loans may appear to be easy money, paying them back is expensive at best and financially crippling for many borrowers.
If you’re looking to avoid the predatory payday loan debt trap, here’s a look at some payday loan alternatives that could help you skip a trip to the loan counter.
What is a payday loan alternative?
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%.
If you need a place to start looking for a personal loan, head over to Fiona – a personal loan aggregator that can show you all of your rate options in one place.
Fiona can get you results in just seconds, and you won’t need to enter a ton of personal information until you’re ready to apply through the lender of your choice.
Peer-to-peer lending apps are another potential source of funds. These unique personal loans don’t come from a bank or traditional lender. Instead, you post your loan information on a website and a crowd of investors funds your loan.
Prosper Loans is an example of one of these peer-to-peer lending sites. In fact, they were one of the first peer-to-peer lenders ever.
You’ll need a credit score of at least 640 to get a loan through Prosper, but there’s no minimum income required to qualify.
Interest rates through Prosper will vary based on your credit and financial history, just like traditional loans. While not all loans are successfully funded, many are and they are pretty much always going to be cheaper than a payday loan.
Work out a payment plan
One more place to look before rushing out and borrowing, is to look 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.