Better Alternatives To Payday Loans

Payday loans are short-term borrowing solutions in which lenders give people high-interest loans when they need money as soon as possible. They are typically for $500 or less and can be available in person or online. They do not require a credit check, and some states do not allow payday lending.

Typically, the lender will agree to disperse the loan as long as the borrower has a job, a phone, a utility bill, a checking account, and a driver’s license. The borrower will then write a check to the lender for the loan amount plus fees and interest. The lender holds on to the check and deposits it on the borrower’s next payday.

The catch? If the check bounces and you can’t make the payment, the lender will tack on more charges and fees for the next payday, creating an endless cycle of needing more money and taking out more payday loans. Many financial experts recommend against using these loans and exploring alternatives to payday loans, like personal loans, payment plans, and more.

Alternatives To Payday Loans

If you’re in a bind and need extra cash, consider these alternatives to payday loans.

Borrow Money From Savings Or Retirement Accounts

Of course, this is the easy answer if you already have savings built up, but if you don’t, try consolidating whatever cash you have into one place to see how much you have. You may find that it is enough to cover the emergency and you can rebuild from there.

While taxes and penalties may be involved with withdrawing money from a retirement account, like your 401(k), these fees are still generally lower than the interest and fees involved with payday loans.

Try Personal Loans

If you have an average to good credit score, apply for a personal loan at a financial institution, like a credit union. This will get you back on your feet and allow you to borrow what you need while making regular payments with a lower interest rate.

Personal loans can be used for many different purposes, like resolving debt or paying unexpected bills. They can have fixed or variable interest rates and may have origination and late payment fees.

Payment Plans

Payment plans are sometimes available depending on the type of bill that needs to be paid. They may be structured in different ways, but generally allow you to pay for a product or service over time rather than all at once.

Payment plans involve installments paid regularly over a specific period, such as bi-weekly or monthly. They are most often used in the car, healthcare, education, utilities, and real estate industries.

Local Charities & Community Assistance Programs

Many cities have local charities and various community assistance programs that can help with rent, mortgage, and utility bills. It’s easiest to filter these results based on the city and county you live in. Sites like 211.org provide help finding and applying for these programs.

Employer Advances

Some companies offer payroll advances, which are short-term loans to employees that are repaid with future earnings. Most of the time, employees are required to request the payroll advance in writing, and the employer will either agree or disagree and set out a repayment plan. In some cases, service fees and interest are involved.

Use A Credit Card

Even though it would be best to avoid using any credit, using a credit card is a better option than a payday loan. It will give you more time to pay the money back, at a lower interest rate, and you can break the payment up how you’d like.

In addition, making on-time payments on a credit card can build and improve your credit score. Unlike payday loans, many credit cards also offer rewards programs and lower risk of entering the debt cycle.

Unexpected crises happen and are out of our control, but avoiding a payday loan at all costs will help you in the long run. Instead of a payday loan, choose other options like a personal loan or a credit card. This may also be a good time to start an emergency savings and work on building a budget for the future. With a little preparation, you can be ready for most financial burdens and emergencies that comes your way.

A+FCU Can Help You Avoid Payday Loans

While they can seem like a good solution when you’re in a pinch, payday loans can have long-term consequences on your financial health. A+FCU can help you find alternatives to payday loans, by providing solutions like personal loans and by helping you learn more about budgeting so you’re never stuck using payday loans. We can also help you negotiate your bills and debts to help you manage your finances more easily.

Membership required. Programs, rates, terms, and conditions are subject to change without notice. Normal lending criteria apply. All loans subject to credit approval. Rates are subject to credit score and normal credit underwriting factors.