You’re in need of some quick cash and you’ve heard about payday loans. They could be an option but are they a good idea? Not exactly. Payday loan lenders are notoriously expensive for consumers. Read on to learn more about payday loans and payday loan alternatives.
But what is a payday loan?
A payday loan is a type of cash advance loan. You borrow money and then pay the lender back on your next payday, hence the name payday loan. But the lender can charge exorbitant payday loan interest rates, sometimes up to 400%. Many payday loan lenders are predatory and getting a payday loan can keep you in a cycle of debt.
10 Payday Loan Alternatives
1. Set up a Payment Plan with the Company
If you’re having trouble making payments before you get a payday loan, see if you can set up a payment plan with the company you owe money to. It can be awkward to talk to the company but this is a better alternative than missing a payment.
So, ask if you can put a payment plan in place as a payday loan alternative. You may be able to pay something and pay more down the line. If you have federal student loans, you can call your loan servicer and see if you can defer your loans or put them in forbearance. You can also consider an income-driven repayment plan, where your monthly payments are lowered to a small portion of your discretionary income.
The key is to take action and talk to your lenders about a payment plan to see what options are available.
2. Get Paid Early
You might be counting down the days until payday so you can have some money in the bank. If possible, ask your employer if you can get an advance on your paycheck. If that’s not possible, consider switching to a bank that has a “Get Paid Early” feature. Using Chime, you can get paid up to two days early with direct deposit.
3. Dip Into Your Savings
Building up savings is tough and can take a long time. When you finally grow your savings account, this can offer you a sense of security. If you’re lucky enough to have a robust savings account before you apply for a payday loan, consider dipping into your savings.
This is one reason why you build a savings account to begin with. Things come up and your savings can act like a buffer. Rebuilding your savings account, in turn, is better than paying back a payday loan. Given the crazy high interest rates that come along with payday loans, you’ll want to avoid them at all costs. Instead, taking money from your savings account is akin to taking a loan out for your future self. Wouldn’t you rather pay yourself back then a predatory lender that charges 400 percent payday loan interest rates on the loan?
4. Find a Bank That Will Spot You Money With No Fees
If you just need a little to get by, you might be eligible to use $100 through SpotMe from Chime. For eligible members, we’ll cover $100 on debit card purchases without any overdraft fees. Instead of getting hit with an overdraft fee, which could be $34 a pop, we can spot you $100 fee-free.
5. Borrow Money from Family Members or Friends
This isn’t an option for everyone, but if you have trusted family or friends that can loan you money, consider borrowing from them. Will your parents loan you some money, interest-free? Do you have an older brother or sister who can spot you just this once, while you get it together?
If you do this, be clear on the amount and the timeframe in which you’ll pay them back. Going this route can be tricky and you don’t want to burn any bridges or ruin relationships with family, so consider it carefully. But if it’s an option with no strings attached, this can help you avoid a payday lender.
6. Earn Extra Money with a Side Hustle
Cutting back is the first thing you should do if you need extra cash. But if you’ve cut back all that you can, your next step is to earn more money. If you have free time, you can start side hustling. A side hustle is a gig that you do on the side to earn more money. I worked as a brand ambassador and freelance writer as a side hustle while I was paying off debt.
There are many side hustles available, including babysitting, graphic design, dog walking, Uber, Postmates, etc. Find your passion and zero in on your skills.
7. Take Out a Personal Loan from a Bank or Credit Union
If you have debts to pay back or need to cover your basic expenses, you don’t want to turn to a payday loan as your first option. But you might wonder “Where can I get a loan” that doesn’t have such high interest rates?
You can consider taking out a personal loan from a bank or credit union. If you have good credit, oftentimes a bank or credit union will offer a much lower rate than a payday loan lender. Can you get a loan with bad credit? It depends on the lender but your approval odds might be diminished.
A bank or credit union is a good option if the financial institution offers you a loan with a good rate and favorable repayment terms.
8. Sell Your Stuff
Sometimes coming up with quick cash just requires a little creativity. One thing you can do is sell stuff you no longer want or need. Now is the time to declutter and get rid of everything that doesn’t spark joy! If you don’t really use it that much, let it go.
You can sell your items on Facebook Marketplace, OfferUp, Poshmark and Craigslist. Just think: Getting rid of your stuff can be just the thing you need to bring in some more money, helping you avoid a payday loan.
9. Break Out the Credit Card
We’re never going to condone getting into credit card debt – if you can avoid it. But if you’re thinking of going to a payday lender, your credit card is likely a better option. Although many credit card interest rates can be around 17 percent and up, this is still better than what payday loans offer.
So, you’ll likely pay less interest if you use your credit card strategically. Just make sure you don’t max out your credit card as this will affect your credit utilization. This, in turn, can lower your credit score.
10. Use a Line of Credit
Another option is to use a line of credit. Financial institutions may offer a line of credit that you can draw upon when you need funds. A line of credit is different from a loan in that there’s a set amount available that you can draw from. You only pay interest once you borrow the money.
If a financial institution will offer you a line of credit, giving you quick access to capital, this can prevent you from resorting to a payday loan.
Once You’re Back on Track, Make Sure You Build Up Your Emergency Fund
If you’re freaking out and in debt, wondering how you’re going to pay bills, opting for a payday loan may seem like a good option. But there are many better choices to consider first. Using these 11 payday loan alternatives, you can find a different solution that will save you money.
Once you’ve resolved your financial “sitch”, start building up your emergency fund. This way you can handle things like this in the future without borrowing money. While it can be tough to start building an emergency fund, this will help you pay for future unexpected expenses.