If you’re struggling to cover expenses and in dire need of emergency funds, you may be tempted to search for the best online payday loans. However, many payday loan providers are predatory and charge exorbitant fees and interest rates. Even the best payday loans may leave you in a long-term cycle of debt, so it’s essential to understand why you should instead look for a payday loan alternative. Read on for our suggestions on making the most of your financial situation.
Alternative #1: Credit Card as a Payday Loan Alternative
If you need money fast, you have average to excellent credit, and a paycheck on the way, a credit card can serve as one possible payday loan alternative, especially if you can find one with a 0% intro APR. While it typically takes a week to get a credit card in the mail, some companies like Discover will ship a card overnight if you’re willing to pay an extra fee. If you have existing credit card debt, however, consider using a balance transfer credit card, which offers a long window for cardholders to pay off outstanding debts.
Discover it® Cash Back
OneMain Financial loans are a strong payday loan alternative, as they specialize in offering personal loans to people with lower credit scores. While there’s no minimum credit score, the beginning APR on personal loans is much higher than other P2P lenders. OneMain Financial offers secured and unsecured loan options, with versatile loan terms available. The downside is its APR, the highest of our recommended P2P lenders, though it’s still much better than a payday loan’s 400%.
Lending Club Highlights
- Borrowing Limits:
$1,000 – $40,000
- APR Range:
6.95% to 35.89%
- Term lengths:
36 or 60 months
- Minimum credit score:
LendingClub offers personal loans with solid APRs starting at 6.95% for those with above-average credit. It can take as few as three days to approve and fund a loan. If you have other outstanding loans, you may be able to consolidate your debts into one loan with LendingClub’s Direct Pay. To qualify, borrowers must use up to 80% of their loan to pay off outstanding debt.
With a minimum credit score requirement of 640, Prosper is a strong choice for borrowers with good to excellent credit. The company utilizes an internal scoring system based on a borrower’s past behavior, combining it with credit history to determine a unique grade for borrowers. If you need your loan funded quickly, Prosper has one of the shortest turnaround times: an average of 1-3 days.
Alternative #3: Payday Alternative Loan
A payday alternative loan (PAL) is backed by the United States federal government and available through chartered National Credit Union Association (NCUA) members. These loans are designed to help borrowers that are either caught or about to be caught in the debt trap of payday loans. Each loan offers:
- Loans between $200-$1,000
- Repayment terms of one to six months
- Processing fees up to $20
- Lower interest rates of up to 28%
To qualify for a PAL, borrowers must be members of the federal credit union for at least one month. The PAL must be repaid by the payment date and cannot be rolled over, and borrowers may not take out more than three PALs within a six-month period. Poor credit scores don’t affect a credit union’s willingness to grant a PAL. Instead, they’re more interested in consistent income and ability to repay. The APRs on payday alternative loans vary by credit union. You can find and contact your local credit union here.
Payday Loan Alternatives to Avoid
You’re in need of emergency funding but would still like to avoid the high APRs of a payday loan. Unfortunately, there are many predatory loan companies targeting people facing desperate circumstances. Two such predatory loans situations that should be avoided include:
- Cash advances
- Auto title loans
Both loans may offer lower APRs and more flexible repayment terms than payday lenders but also come with long term-consequences and high fees.
Using a Cash Advance as a Payday Loan Alternative
Cash advances are loans offered through your credit card that come with hefty fees, interest rates that could exceed 20%, and no grace period — you’ll begin paying off your loan the following month. If you must take out a cash advance:
- Understand your credit card’s terms and conditions
- Use a card with $0 balance
- Don’t make purchases on the card until your loan is repaid
Using an Auto Title Loan as a Payday Loan Alternative
Auto title loans are secured loans made using your vehicle as collateral. If you default on your loan, your vehicle may be repossessed. They’re one of the worst options for a payday loan alternative. According to the FTC, auto title loans typically:
- Have a triple-digit APR.
- Have a 15 to 30-day repayment period.
- Can be 25% to 50% of the car’s value.
Repayment of an auto title loan might not even have a positive effect on your credit score and should be avoided at all costs.
What Is a Payday Loan?
A payday loan is a short-term loan, often for under $1,000, typically due back within two weeks to a month. Payday loans are designed to float borrowers that are between paychecks but need cash fast. Payday loans are appealing because little is required to receive one. With an address, proof of employment, and references, you can get a loan.
No matter your credit, payday loans charge a flat rate of between $15 to $30 per $100 borrowed. Even the best payday loans average around 400% APR per loan. In 2013, the Consumer Financial Protection Bureau found that the average payday borrower remained in debt for almost 200 days, turning a short-term crisis into a long-term debt nightmare.
The Bottom Line of Payday Loan Alternatives
Payday loans are predatory, landing borrowers in a debt cycle that lasts for months or even years. Avoid payday loans when possible. Seek help from family or friends, use credit cards to your advantage, take out a personal loan, or apply for a payday alternative loan. Even declaring bankruptcy may be better than taking out a payday loan. If all of these options fail you, shop around for the best payday loans of 2020. Look for the lowest interest rates and best terms you can find. Be wary of online payday loan lenders, and never borrow more than you can repay.
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