9 alternatives to payday loans


You have a large bill to pay and not enough money to pay it. A payday loan could be the solution to your problem – if you don’t mind paying very high interest rates. It is not uncommon for payday loans to have APRs above 100%.

Is there a better alternative? We can think of at least nine of them.

1. Credit cards – Credit cards aren’t a long-term solution to debt, but the interest rate is still considerably lower than payday loan rates. They may be a better choice for short-term debt that you can pay off fairly quickly. If you want more credit, check out our list of credit card offers.

2. Negotiation with the lender – You may be negotiating from a greater position of strength than you realize. Lenders may be willing to work with you to change your payment plan, or even defer a payment if you have a good credit history. If you plan to negotiate, do it quickly – once you start missing payments, your lender will be less understanding.

3. Personal loans – Personal loans may be a better alternative for larger debts, assuming you have sufficient credit to qualify. Interest rates will be near or above credit card rates – usually between 10% and 32%, depending on your credit rating. You can check your credit score and read your credit report for free in minutes using Credit Manager by MoneyTips.

4. Sell Items – Do you have assets that you no longer use? The answer to your temporary cash flow problem could be in your attic or garage. Can you sell enough to cover your debt?

5. Borrow on life insurance – If you have a whole life insurance policy, you can borrow against it and take as long as you want to pay it off – although death benefits are reduced if you don’t repay the loan before you die.

6. Borrow from a 401(k) – It is better not to borrow from your 401(k) plan, because you lose the cumulative effect of that money – but at least you don’t have to worry about qualifying, and the interest you pay comes back to your account. You must repay the loan, including interest, within five years to avoid significant penalties.

7. Borrow from family/friends – It is a great way to borrow money on favorable terms. It’s also a great way to alienate family members and lose friends. Make sure you agree on a repayment plan and the consequences of not making payments. Put the terms in writing to avoid future disputes.

8. Alternative Payday Loan (PAL) – As the name suggests, PALs are small loans that federal credit unions offer to avoid payday loans. Loans are small ($200 to $1,000) and terms range from one to six months. credit unions require membership, but there are many credit unions available with varying membership requirements. Note that you must be a member for at least one month before being eligible for a PAL.

9. Increase your income – Can you work overtime at your current job? Is a second job possible? Do you have a side job or hobby that you could turn into a suitable source of income? If you cannot bring in enough additional income in a short time to make a required payment, consider asking your current employer for an advance on your salary. Remember that your future checks will be lower until the advance is absorbed.

All of these steps are reasonable alternatives to payday loans, but none of them are preventative. If you’re in a situation where you need a payday loan — especially more than once — consider consulting a credit counselor to help you budget and get your finances in order.

Photo ©iStockphoto.com/agrobacter

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