If you need money fast to cover an emergency or essential living expense, you may be tempted to take out a payday loan.
These loans are often easy to get—some lenders won’t even check your credit score—but these loans tend to also come with sky-high costs. If you need money quickly, consider one of the nine payday loan alternatives below to keep more of your hard-earned cash.
Risks of a Payday Loan
Payday loans are a type loan where approval is often “guaranteed” because of lenient borrower requirements. For example, you may be able to get a payday loan without a job if you can show you have income, benefits or money in the bank to repay the loan.
The downside is that payday loans are notorious for having high fees—which can be equivalent to annual percentage rates (APRs) as high as 400%. For this reason, you should almost always avoid these loans and only use them as a last resort.
If you’re considering a payday loan, watch out for personal loan scams that promise funds without a credit check. The real aim could be to swindle you out of personal information like your bank information to commit fraud.
1. Apply for a Payday Alternative Loan
Some federal credit unions offer payday alternative loans, which are loans designed to provide a lower-cost 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 far better than what you typically see on a payday loan. To qualify for a payday alternative loan, you’ll need to be a member of a federal credit union that offers this loan type.
2. Borrow From a Credit Union
Unlike traditional banks, credit unions are not-for-profit, member-owned institutions. Because of this, you may find lower interest rates at a credit union for personal loans and other types of loans. Also, credit unions usually have less stringent eligibility requirements than traditional banks, so you might qualify to borrow money with less-than-stellar credit.
Like a payday alternative loan, this option requires you to be a credit union member.
3. Apply for a Bad Credit Loan
If your credit score falls in the 580 to 669 credit score range, according to the FICO credit scoring model, you may be able to get a bad credit loan. Lenders who offer bad credit loans may approve applicants with credit scores as low as 580. To qualify for a loan with a score less than 580, consider using a co-borrower or co-signer, if the lender permits. While it’s possible to get a loan with bad credit and no co-signer, it’s likely to be more expensive.
In addition to your credit score, lenders will base your eligibility on other factors, such as your income and debt-to-income (DTI) ratio. You likely won’t secure the best interest rate with a fair credit score, but lenders usually have a maximum interest rate in the mid-30s. Although this rate is high, installment emergency loans for bad credit and other bad credit loans may have more predictable terms and costs than payday loans.
Before you apply, pre-qualify for a personal loan with multiple lenders, if possible, to compare loan interest rates and terms. Be prepared to provide personal information, such as your income, Social Security number (SSN) and birthdate when you complete the formal application process.
4. Borrow From Friends and Family
Another way to avoid the high interest rates and fees of payday loans is to ask your family members for a family loan or to borrow money from your friends. It can also be easier to get the cash you need since you don’t have to go through the formal application process.
Once the family member or friend agrees, you should create a loan agreement, which should include repayment terms and the interest rate (if any). One important note: Repay the loan on time to maintain a healthy relationship with the family member.
5. Get Help With Bills Through Payment Plans
If you struggle to pay your bills, ask the provider if you can set up a payment plan. That way, you can avoid having to pay the bill in one lump sum. Some lenders may have a forbearance or deferment program in place to help you get through rough times.
With this option, keep in mind that you’ll likely incur interest and fees. However, the extra interest and fees might be worth paying if it helps you avoid taking out a payday loan. You could also try to consolidate bills to lower your payments and interest rates if you can qualify for a consolidation loan.
6. Create Alternative Ways to Make Money
Boosting your income might help you avoid taking out a payday loan. Although earning more money is easier said than done, a lot of opportunities exist online and offline. Some online opportunities include freelance writing, taking surveys, and beta testing apps and websites. Offline opportunities include driving for DoorDash or Uber, selling used items in a garage sale and working a part-time job on the side.
7. Use a Credit Card Responsibly
Another way to avoid the high interest charges and fees of a payday loan is to use a credit card responsibly. This means using your credit card only for purchases you can afford to repay on or before the due date. Paying your balance in full on or before the due date can help you avoid interest charges altogether, late fees and possible damage to your credit score.
Besides charging purchases to a credit card, you could draw cash from the card using a cash advance. While it puts money in your pocket, cash advances may also come with extra advance fees and a higher interest rate. Before choosing a cash advance or payday loan, it’s important to compare long-term costs.
8. Apply for Financial Assistance Programs
Depending on how much you earn, you may qualify for financial assistance programs in your area. Some programs may offer rental assistance, while others can help you pay for food and other expenses. To find these programs, consider reaching out to your local library or chamber of commerce.
