11 smarter alternatives to payday loans



PDaily loans are tempting when you need quick cash. They are easy to get and you get your money the next day. But high interest rates and short repayment terms mean that, more often than not, you are stepping into a deeper hole. Many borrowers find themselves unable to meet the payments and are then charged additional fees, making it nearly impossible to pay off the debt. This can adversely affect your credit score, which in turn affects your ability to obtain other types of loans in the future.

If you are in urgent need of extra cash, we recommend that you avoid payday loans. Instead, try one of these alternatives.

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1. Look for ways to increase your income

Consider selling any items you don’t need for extra cash. If you work by the hour, you can also work extra shifts and enjoy the benefits of overtime pay. Or consider starting a side concert. If you can find a way to make some extra cash on your own, you don’t have to worry about getting into debt.

2. Negotiate a payment plan with your creditor

Creditors are often happy to work with you if you contact them and ask for more manageable repayment terms. For example, suppose you have taken out a $ 15,000 car loan from the bank and are struggling to make the monthly payments of $ 300. The bank may be willing to let you defer payment for a month or two until you get back on your feet. Or it can allow you to refinance the loan so that you only pay $ 200 per month over a longer term.

Whether or not the lender authorizes it depends on their policies and your repayment history. If you’ve been consistently behind on your payments for several months, you might find the lender less accommodating. That’s why it’s a good idea to contact as soon as you start having trouble making payments.

3. Draw on your emergency fund

Hope you hold a emergency fund So you don’t need to take out loans when unforeseen expenses arise. If you have enough in your savings, use it. This will save you money in the long run because all the money you pay it back is yours and you won’t lose any interest.

4. Borrow from friends or family

If your family and friends have the money to lend you and are confident you can pay it back, this is a smart way to go. Most family members won’t charge you any interest and are more willing to be flexible about repayment terms.

Make sure you discuss the details of the loan carefully beforehand and make sure both parties agree on the repayment terms, including interest payable. You should also talk about the consequences if you don’t pay back the loan on time. It’s a good idea to get a copy of these details in writing so that you both can refer to them later.

5. Request an advance from your employer

Not all companies allow employees to take an advance on their wages, so check your company policies. If this is an option for you, it is worth considering as you will not have to repay anything. But keep in mind that you won’t get your full paycheck on your next pay period.

6. Take out a personal loan

A Personal loan is a viable alternative if you have good credit and need to borrow a large amount (most lenders require a personal loan of at least $ 500). APRs can still be high, often ranging from 10% to 30%, but that’s still a steal compared to the outrageous 400% APR that some payday lenders charge. Plus, personal loans often give you anywhere from six months to five years to repay them, depending on the loan amount.

7. Take out an alternative payday loan (PAL)

An alternative payday loan is worth considering if you need to borrow $ 1,000 or less. PALs are offered by federal credit unions, and like payday loans, they are generally easy to obtain, regardless of the credit, and you get your money quickly. However, you must be a member of the credit union you have been borrowing from for at least a month before you can apply. The maximum interest rate is 28% and the repayment terms vary from one to six months.

8. Pay with a credit card

While this is not as risky as a payday loan, you will need to be careful not to overcharge your credit card as it can become a slippery slope. Credit card interest rates are often high, so you should avoid this method unless you are sure you can pay off the debt quickly. Look for a credit card with an APR below 20%, or better yet, an introductory APR of 0% so you have a window to make interest-free payments.

9. Borrow on your 401 (k)

This strategy can get back on you, so it should only be used if you are borrowing a small amount and are sure you can pay it back quickly. The advantage of borrowing from a 401 (k) account is that while you will have to pay it back with interest, that interest goes into your retirement account instead of in a banker’s pocket. Plus, you don’t have to worry about being turned down because of your credit.

But there are limits to what you can borrow. The maximum amount you can withdraw is 1) the greater of $ 10,000 or 50% of the account balance or 2) $ 50,000, whichever is less.

You have to pay back the money you borrowed from your 401 (k), with interest, within five years if you want to avoid being penalized. If you do not repay the amount owed during this period, the unpaid amount will be considered a distribution. This means that it will be subject to income tax, as well as a 10% early withdrawal penalty if you are under 59 1/2.

You can also borrow from your IRA if you have one, although it’s a bit more complicated.

10. Borrow against your life insurance policy

If you have whole life insurance, you can also take out a loan. The advantage of doing this is that you have your entire life to pay off the loan. If you don’t pay back the full amount, that’s okay, but the missing amount will be subtracted from your death benefit. Any money you borrow from your whole life insurance policy must be paid back with interest if you want to receive the full benefit, but interest rates are generally more affordable than what a bank or credit card will charge you – generally between 10% and 15%. %.

11. Consider credit counseling

Credit counseling won’t get you the money you need right away, but it can help you manage your finances better and pay off your existing debt so you don’t have to pay even more. A credit counselor will review your financial situation and work with you to develop a debt management plan so that you can pay off your debt over time.

If you are interested in taking credit counseling, be sure to choose a reputable company. Do some research to see what options are available, then check with your state attorney general or consumer protection agency that no complaints have been filed against them.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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