We’ve come up with good alternatives to payday loans for people who need emergency funds and opt to go the loan route. Some of these still may have high interest rates (anywhere from less than twenty percent to a high 100 percent), they are absolutely better than payday loans which can have interest rates in the hundreds of percent.
What are Payday Loans?
Payday Loans are some of the most popular loans because it’s easy to get them and you don’t usually have credit check requirements. The problem is that people land themselves in a world of troubled because they are given a payday loan with interest rates between 200 to 900 percent, find they can’t actually pay the loan back and quickly watch their original ‘debt’ skyrocket from all the interest. In some cases, people will take out payday loans to payback payday loans, a term known as ‘rolling over the loan’. In this case, they end up paying ‘borrowing fees’ for taking out the payday loan and can quickly rack up hundreds or even thousands of dollars JUST in fees, not even counting the original loan amount they owe.
The good news here is that there are some viable PAYDAY loan alternatives – small, easy to get short-term loans with much lower interest rates, no credit checks, no (or smaller) borrowing fees, and a more flexible repayment schedule.
The Best Payday Loan Alternatives
There are a number of ‘special loans’ offered by credit unions, banks, and the government to give consumers a better alternative to payday loan vendors, which have crazy high interest and all manner of fees. We absolutely do not recommend you take out a payday loan if you need money for an emergency situation. Explore THESE alternatives first.
Credit Union Short Term Loans
A more flexible banking system that offers customers lower interest loans with usually less restrictions on who can borrow. Here are some Credit Union offerings:
- Salary Advance Loans From Credit Unions: Another new type of loan product available from Credit Unions. These are salary advances but unlike payday loans, don’t require you to pay a fee to ‘borrow’ like you do with payday loans and the interest rates are not between the 200 and 900 percent you normally pay with a payday loan. The amount lent is usually small – a few hundred dollars to a thousand dollars. The APR interest rate for Credit Union salary advance loans is usually capped at 18.00%. Compare this to payday loans with APR rates of 200 to 900 percent and you see how much better a deal salary advance loans are. In fact, these loans are much lower interest than some of the alternative short loan options from banks, including checking account advances for US Bank and short term early access loans from First Bank, both which have much higher interest rates.
- Stretch Pay loans from Credit Unions: Credit Union and small bank versions of payday loans but with better terms. This is a ‘new type’ of loan that’s just starting become popular – you’ll have to contact your small community bank or credit union and inquire about these loans. The loan amounts are usually small, between 500 to 2000 dollars. There is usually no credit check involved.
Short Term Loan Products from Banks
Banks are the normal source for loan products when it comes to borrowing (mortgages, cars, etc). You can of course get a traditional loan from a bank, but many banks, to compete with payday lenders, are offering short term loan products that function as better alternatives to payday loans — you pay way less fees, far less interest, and there is consumer protection and government regulation built into the loans to prevent out of spiral debt.
- FDIC Small Dollar Loans: These are government-backed low interest loans that are a banking alternative to the payday loans. They are small dollar loans and require no credit checks. FDIC loans can be up to $2500 dollars and the interest rate ranges between 14 percent and 18 percent. This is pretty much equivalent to the Stretch Pay Loans you can get at a Credit Union, with the added advantage of the amount being a bit higher, little to no credit score requirements (since it’s backed by the government to help lower income households), and it counts towards your credit history. These are better alternatives to payday loans which charge very high interest rates.
- Wells Fargo Direct Deposit Loan: A payday loan alternative, but one that charges less interest and has more flexible repayment terms. Think of it as a lower interest payday loan alterative with a reputable bank with far more consumer protection built into the deal. If you need a payday loan for an emergency expense, consider THIS loan first.
- US Bank Checking Account Advance : This is basically an advance given to you IF you have a checking or savings account with your upcoming paycheck set up as a direct deposit. Basically the bank will give you an ‘advance’ on your paycheck – since you should have a history of direct deposits already coming into your account and a job that’s paying you, the bank is willing to advance you money. This is not suitable for a non-emergency situation though, since interest rates are high and you pay a percentage fee on how much you take out. If you borrow say $1000 as an advance, you will pay $100 (it’s $2 per every twenty dollars you borrow). This is a better alternative than taking out a payday loan, however.
- Fifth Third Banks Early Access Loan: A similar loan product to the one offered by US Bank above. If you have a checking account with Fifth Third Bank and a history of money going into the account, the bank can advance you a small loan (up to $500). The interest rates is 120% which is quite high but still nowhere near as high as payday loans which can be 200 to 900 percent.
Other Emergency Payday Loan Alternatives
Besides credit union and bank short term loans, lines of credit, and salary advance products, there are some unique loan options that you should look too.
- Interest Free Loans from Nonprofits: It’s possible to get interest free loans from nonprofits who are willing to lend to individuals with good ideas who need a loan for something specific that can greatly enhance your life and lead to better productivity or in some cases for financial assistance reasons. Things like buying a car to go to work, home repair, rental expenses, etc. These are given out as FINANCIAL assistance, so you’ll need to be able to prove your low income status and your financial need. Don’t expect to get an interest free loan so you can go to Mexico for a vacation. There are two major organizations that offer this type of loan. If you search though, you may find more. Association of Jewish or Hebrew Free Loans — an organization that makes no-interest loans to households with financial need. The money can be used to fix a car, medical expensive, home repair, etc. Another such organization that gives this out is the Federal Employee and Education Assistance Fund which is a government backed initiative that lends money to federal employees who need emergency funds for some unexpected crisis situation.
- Peer to Peer Loans: A new type of product but one where you borrow from a community online rather than a specific institution. You may be able to land better interest rates than you could from a bank and with less credit check requirements. Of course, this all depends on your income level, your credit history, and what you are going to do with the loan. Check out the Lending Club for a peer to peer lender.
- Bank Overdraft (beware of the $35 fee you pay however): You can use your bank account as a line of credit of sorts. As soon as you dip into the negative, you will be charges a flat fee (standard is 35 dollars). If you don’t bring your account back to 0 before the end of the month, you will pay high interest as well. But if you just need a few hundred dollars, this personal line of credit is a better.
- Use Credit Card: If you have some bills and you need to borrow to pay them, using your credit card is a better option. There is no penalty here if you pay with your Credit Card and repay the loan within 30 days after charging your credit card. If you need cash, you can take out a credit card advance. Just keep in mind by doing this, you will pay higher interest fees as well as a financing fee. Both of these are likely to be much less than Payday loan fees and interest rates, however. SO in a pinch, this is the better alternative.
- Personal Loan from a bank: If you can qualify for a traditional bank loan, this is almost always better than a short term payday loan. Traditional loans require credit checks and a somewhat complicated application and approval process, so it might not be ideal for short term emergency funding. But if you have the time and decent credit history, it’s always a better option than payday loans.
- Line of Credit: If you can set up a line of credit with your bank or credit union, this might be a good option. The interest rates will be much lower.
- Borrow money from family or friends: A good option if you can borrow money from people you know.
Employer salary advance: If you can get an advance on your paycheck from your employer this is better in every regard to taking out a payday loan or any loan for that matter. You won’t be paying any fees for this!
If all else fails and you are forced to take out a payday loan…
Payday loans are popular because they are incredibly easy to get. If you’ve tried these other options and they didn’t work for you and you still opt for a payday loan, it’s imperative you do the following:
- Shop for a REPUTABLE payday lender. There are many and some are more reputable than others. You want to find one that offers the LOWEST fees and interest rate
- Read the fine terms on your loan. Know your interest, know your financing fees, late fees, and everything else including how long you have to pay the loan back before interest kicks in.
- Pay your payday loan back asap. This should be the first thing you do once you get your paycheck to avoid getting into loan debt trouble
- Make sure you know your state’s Usury Laws which regulate lenders so you know your rights when you borrow. Keep in mind many payday lenders find loopholes around these laws, so you absolutely need to READ THE PAYDAY LOAN fineprint!