Payday Alternative Loans
Payday Alternative Loans (PALs), offered exclusively through credit unions, have specific rules that limit the costs you pay and the amount you borrow. For example, application fees are limited to $20 or less. You can borrow between $200 and $1,000, and you have up to six months to repay your loan.
Personal Loans
Using a personal loan typically allows you to borrow for periods of two to five years, and sometimes as high as seven years. That longer term results in smaller monthly payments, so large loan balances are easier to manage. However, you pay interest for as long as you borrow, so it’s not ideal to stretch things out for too long. Several online lenders are willing to work with borrowers who have fair credit or bad credit.
Credit Cards
Credit cards allow you to quickly spend money or borrow against your credit limit with a cash advance. If you already have a card open, that makes things easy. You can also apply for a new credit card and get a quick answer on approval. Although rates may be relatively high, credit cards are likely less expensive than a payday loan, and you may enjoy more flexibility when it comes to repayment.
Consolidate Existing Debts
Instead of taking on more debt with a payday advance, you may benefit from rearranging or refinancing your current loans. If you get a lower rate or longer repayment term, you should have lower monthly payments, potentially eliminating the need to borrow more. Explore debt consolidation loans that allow you to bundle everything into one loan and get your cash flow under control.
Borrow With a Co-Signer
A co-signer could help you get approved for a personal loan, credit card, or debt consolidation loan. They apply for a loan with you and, consequently, the lender takes the co-signer’s credit history into account when deciding to give you a loan. For the strategy to work, your co-signer should have a high credit score and plenty of income to cover the monthly payments (even though you’re the one paying, ideally).
Borrow From Friends or Family
Borrowing from people you know can complicate relationships but sometimes, it’s the best option for avoiding high-cost loans. If somebody is willing to help you, consider the pros and cons, and think about how things will go if you’re unable to repay your loan. The IRS requires that you and your family member create a signed document that includes the loan’s repayment period and a minimum interest rate. If you can, set up a free consultation with a CPA and ask them what the tax implications of the loan could look like for you and the person lending to you.
Get a Payroll Advance
If your work schedule is consistent, you may be able to ask your employer to provide an advance on your future earnings. Doing so would enable you to dodge hefty payday loan costs, but there’s a catch: You’ll receive smaller paychecks (or bank deposits) in subsequent pay periods, which could leave you in a difficult situation. One of the most flexible payroll advance apps is Earnin, which does not charge monthly fees or require your employer to participate. With Earnin, you can borrow up to $100 to $500 per day if you’re eligible, and the service will collect from your bank account after payday. There’s no interest cost or processing fee with Earnin, but you can leave a tip through the app.
Ask Your Lenders for Payment Assistance
If you’re considering a payday loan because you need help keeping up with payments or bills, ask about payment and assistance programs. For example, your auto-loan lender may be willing to work something out with you. You might be able to negotiate for delayed payments or a different payment schedule, which could eliminate the need to take on more debt or have your car repossessed.
Consider Government Programs
Local assistance programs through your Department of Health and Human Services may also help you cover some expenses. Your local office should have information on a variety of financial help programs that could cover the cost of food and other expenses. For example, the Supplemental Nutrition Assistance Program (SNAP) could provide up to $835 a month to purchase food. If you’re eligible for the program, the money you get for groceries could help you avoid taking out a loan.
Emergency Savings
If you’re fortunate enough to have emergency savings available, consider tapping those funds instead of getting a payday loan. One purpose of an emergency fund is to help you meet your needs while avoiding expensive debt—and you might be in the midst of an emergency. Of course, it’s best to keep your savings intact if you’re thinking of borrowing for a “want” instead of a “need.”
Other Financial Moves
If the strategies above don’t free up cash flow, you may find some relief with traditional (but not necessarily easy) money moves. Selling things you own can help you raise cash quickly, but only if you have valuable items you’re willing to part with. Earning extra by working more may be another option, and requires that you have the time, energy, and opportunity to do so. Finally, cutting costs could help to some degree, if you haven’t already trimmed your spending.
title: “Alternatives To Payday Loans” ShowToc: true date: “2022-12-15” author: “Carol Lamb”
When you get any loan, it’s critical to manage your interest rate and processing fees. You can usually avoid problems by being selective about the types of loans you use. If you’re facing high-interest-rate debt such as a payday loan (whether you already borrowed, or it looks like the only option available), evaluate less expensive ways to get the money you need. Lowering your borrowing costs means that each payment goes farther in reducing your debt burden.
Personal Loans
Personal loans are traditional loans from a bank, credit union, or online lender. These loans are typically less expensive than credit cards, payday loans and title loans. They come with a relatively low-interest rate, and that rate often remains fixed throughout the life of your loan.
No Surprises
These straightforward loans typically don’t have “teaser” rates, so you’re not likely to get surprised by sudden payment increases. Processing fees should also be low or nonexistent. Assuming you use a bank or credit union (as opposed to a payday loan shop) all of your costs are typically included in the interest rate you pay.
How Payments Work
With a personal loan, you borrow everything you need to pay off your other obligations in one lump-sum. Then you make regular monthly “installment” payments until you pay off the loan (over a three or five-year term, for example). With each monthly payment, a portion of the payment goes toward reducing the loan balance, and the rest covers your interest costs. That process, known as amortization, is easy to understand and predict with online calculators.
Pay Off Debt Early
What if you come into some money? That’s great. You can usually pay off the loan early, but be sure to check for any prepayment penalties in the loan agreement.
Getting Approved
To qualify for a personal loan, you need decent credit and sufficient income to repay the loan. But you don’t need to pledge collateral to secure the loan. These are sometimes known as “signature” loans because your promise to repay (along with credit and income) is all you need to qualify for the loan.
Person-to-Person (P2P) Loans
P2P loans are a subset of personal loans. Instead of borrowing from a bank or credit union, you can try borrowing from other individuals. Those individuals might be friends and family, or they might be complete strangers who are willing to lend through P2P websites.
Getting Approved
When compared to banks, P2P lenders may be more willing to approve you with less-than-perfect credit or an irregular income. They may also use “alternative” ways to evaluate your creditworthiness. For example, they may consider your college degree or your rental payment history as signals of creditworthiness. Of course, it only makes sense to borrow if you’re sure you can afford to repay.
Informal Loans
Especially with friends and family, your finances might not matter, but it’s still wise to protect your “lender” and your relationships. Put everything in writing so there are no surprises, and secure large loans (like home loans) with a lien in case something happens to you.
Balance Transfers
If you have good credit, you might be able to borrow at low “teaser” rates by taking advantage of balance transfer offers. To do so, you may need to open a new credit card account, or you might get convenience checks from existing accounts that allow you to borrow at 0% APR for six months or so. Balance transfers can work out well when you know that a loan will be short-lived. But it’s hard to predict the future, and you might end up keeping that loan on the books beyond any promotional time periods. If that happens, your “free money” becomes high-interest-rate debt. Use balance transfer offers sparingly, and pay attention to fees that can wipe out all the benefits.
Home Equity
If you own a home and have plenty of equity in the property, you may be able to borrow against your home. Second mortgages often come with relatively low-interest rates (again, compared to credit cards and other consumer loans). But this strategy is far from perfect. The main problem with home equity loans is that you risk losing your home: If you fail to keep up with the payments, your lender can potentially force you out and sell your home. In many cases, that’s not a risk worth taking — sometimes it’s better to use “unsecured” loans like the loans described above. What’s more, you typically pay closing costs to get a home equity loan, and those costs can wipe out any savings you get from putting your home on the line.
Trouble Qualifying?
Finding loan options is easy. Getting approved is the hard part. So, what can you do if lenders aren’t approving your loan?
Go Smaller
You might have better luck at smaller institutions. Credit unions and local banks evaluate your credit and income, but they might be more flexible than megabanks.
Pledge Collateral
If you don’t have sufficient income and assets to qualify for a loan, do you have any assets? You might be able to use those assets as collateral and get approved for a loan. Start with traditional banks and credit unions, and use store-front financing only as a last resort. At a bank or credit union, you might be able to pledge savings accounts, CDs, and other financial accounts as collateral.
Partner Up
A cosigner might help you get approved. If you know somebody with good credit and a decent income, lenders might use that person’s credit and income to approve the loan. However, that arrangement is risky for cosigners. If you fail to repay for any reason, your cosigner is 100% responsible for everything you borrowed, including fees and interest. It’s important that your cosigner understands the risk, and that you understand how generous it is for somebody to cosign for you.
Looking Ahead
Build a solid foundation to avoid high-interest-rate debt such as payday loans in the future:
Establish credit. Doing so makes it easier to get approved with lower interest rates, and you can choose from a variety of lenders instead of taking whatever is available.Keep an emergency fund. With cash on hand, you can deal with surprises without going into debt.Plan your spending. Budget for monthly savings so you can get on solid financial ground. Then, pay off debt and save for long-term goals.
