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If you need quick cash to cover an emergency or essential living expenses, you might be tempted to take out a payday loan.
These loans are often easy to obtain – some lenders will not even check your credit score. However, due to their exorbitant fees, which can be equivalent to annual percentage rates (APRs) of up to 400%, you should avoid this type of loan. You should only use it as a last resort.
Consider one of the nine payday loan alternatives below to keep more of your hard-earned money.
1. Apply for an alternative payday loan
Some federal credit unions offer alternative payday loans, which are loans designed to provide a less expensive alternative to payday loans. With this option, you can borrow up to $ 2,000 and the loan term ranges from one to 12 months. The maximum interest rate is 28%, which is much better than what you typically see on a payday loan.
For example, here is an overview of the maximum percentage rate allowed for payday loans by state based on a $ 100 loan over 14 days.
To be eligible for an alternative payday loan, you must be a member of a federal credit union that offers this type of loan.
2. Borrow from a credit union
Unlike traditional banks, credit unions are non-profit institutions owned by their members. For this reason, you can find cheaper rates at a credit union for personal loans from credit unions and other types of loans. Additionally, credit unions generally have less stringent eligibility requirements than traditional banks, so you might be eligible to borrow money with less than stellar credit.
Like an alternative payday loan, this option requires that you be a member of a credit union.
3. Apply for a bad credit loan
If your credit score is within the fair credit score range (580 to 669), according to the FICO credit score model, you may be eligible for a bad credit loan. Lenders who offer bad loans can approve applicants with a credit score of less than 580. To qualify for a loan with a credit score below 580, consider using a co-borrower or co-signer, if the lender allows it.
In addition to your credit score, lenders will base your eligibility on other factors, such as your income and your debt-to-income ratio (DTI). While you probably don’t get the best interest rate with a fair credit score, lenders typically have a peak interest rate in the mid-1930s. While this rate is high, it is much lower than that. that you would get with a payday loan.
Before applying, prequalify with multiple lenders, if possible, to get an idea of the interest rate and terms of your loan before you apply. Be prepared to provide personal information, such as your income, Social Security Number (SSN), and date of birth when you complete the official application process.
4. Form a loan circle
To help pay for future unforeseen expenses, consider forming a circle of lenders. A circle of lenders is where a group of people set aside a certain amount of money each month and pool it. Depending on the loan agreement, one member can borrow the full amount one month, while another may borrow the full amount later.
You can join an online loan circle or start a loan circle with family and friends. Some online credit clubs report member payments to all three credit bureaus, which can improve your credit score.
5. Borrow from friends and family
Another way to avoid the high interest rates and fees of payday loans is to apply for a family loan from family members or to borrow money from friends. It can also be easier to get the money you need since you don’t have to go through the formal application process.
Once the family member or friend agrees, you need to create a loan agreement, which should include the repayment terms and the interest rate (if applicable). An important note: repay the loan on time to maintain a healthy relationship with the family member.
6. Get help with invoices through payment plans
If you’re having trouble paying your bills, ask the supplier if you can set up a payment plan. This way, you can avoid having to pay the bill all at once. Some lenders may have a forbearance or deferment program in place to help you get through tough times.
With this option, keep in mind that you will likely have to pay interest and fees. However, the interest and additional fees may be worth paying if they help you avoid taking out a payday loan.
7. Create alternative ways to earn money
Increasing your income can save you from taking out a personal loan. While making more money is easier said than done, there are plenty of opportunities both online and offline. Some online opportunities include freelance writing, taking surveys, and beta testing of apps and websites. Offline opportunities include driving for DoorDash or Uber, selling used items at a garage sale, and working part-time alongside.
8. Use a credit card responsibly
Another way to avoid the interest charges and high fees of a payday loan is to use a credit card responsibly. This means using your credit card only for purchases that you can afford to pay off on or before the due date. Paying your balance in full on or before the due date can help you completely avoid interest charges, late fees, and possible damage to your credit score.
Additionally, if your credit score is 700 or higher, you may be eligible for a 0% APR rate credit card. This type of card comes with an interest-free promotional period of up to 21 months. As long as you pay the balance owing before the promotional period expires, you can avoid interest. Thereafter, the remaining balance will accumulate interest charges until it is fully repaid.
9. Apply for financial assistance programs
Depending on how much you earn, you may be eligible for financial aid programs in your area. Some programs may offer rent assistance, while others may help pay for food and other expenses. To find these programs, consider contacting your local library or chamber of commerce.
If you want to avoid the skyrocketing costs with a traditional payday loan, choose another financing option from this list. Compare each option and assess which one is best for your specific situation. The most profitable option you are eligible for is probably the one that is right for you.