The Best Payday Loan Alternatives of 2020

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Chances are that if you’re searching for something like ‘best payday loans’ or ‘best online payday loans,’ you need some fast cash. Regardless of what your emergency need is, the uncertainty of failing to meet financial obligations can be scary. Before you head down the payday loan road, though, you may want to look into payday loan alternatives. Different options exist that may be less expensive and give you a better financial footing navigating your current situation.

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What is a payday loan?

Payday loans are short-term loans that carry high-interest rates and fees. The loans are given as an advance on a future paycheck. Generally, the full repayment of the loan is due after you receive your next paycheck. Many payday loan lenders force you to write a predated check or provide banking details to cover the payment on your due date.

The problems with a payday loan are it can be extremely expensive, can be predatory and often are the start of a cycle of debt that is hard to break out of.

Credit Cards

A top payday loan alternative you should consider is credit cards. Not only are the interest rates and APR (the cost of borrowing) typically much lower, but there is added flexibility that can be helpful. If you take out a payday loan and don’t need the money, you still have to pay for it. With a credit card, you only get charged on the money you borrow.

Also, if you need more money down the road, a payday loan will require you to apply for a second loan. With credit cards, the credit is revolving, meaning that you can use what you need up to your limit over and over again.

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Fast personal loans

Another payday loan alternative option to consider is fast personal loans. Much like credit cards, these unsecured forms of lending require no collateral and can be significantly less expensive than payday loans. Many of the top lenders have processes set up to get money direct deposited into your account the same day or the next business day.

Also, personal loans generally give you much longer terms to pay back your loan, whereas payday loans are typically due in a few weeks. Approval for personal loans may be a bit stricter than with payday loans, but many companies are still willing to work with those customers with less-than-great credit.

Lender APR Min. Loan Max. Loan Terms Time to Funding
OneMain Financial 18.00% – 35.99% $1,500 $20,000 24 – 60 months Same day
LightStream 5.95% – 20.49% $5,000 $100,000 24 – 84 months Same day
Rise Credit 50% – 299% $300 $5,000 4 – 26 months Next day
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OneMain Financial

Loans are available through OneMain Financial up to $20,000 with same-day funding. While smaller loans through the company can be unsecured, larger-sized loans may require an auto title as collateral. For people that do qualify for an unsecured loan, you will generally have a much higher APR. Exact rates and limits are heavily dependent on your resident state, credit profile and borrowing needs.

OneMain Disclosure

Lightstream

Fast personal loans through LightStream start at the $5,000 mark and can go up to $100,000. These unsecured loans can be used for a wide variety of reasons, which may affect the rate that you are charged. If you’re set on using LightStream as a payday loan alternative but find a better rate elsewhere, the company’s Rate Beat Program will pay you $100 and beat the rate you found.

LightStream Disclosure

RISE Credit

If you’re someone with bad credit that’s struggling to find a payday loan alternative, RISE Credit by Elevate may be of help. The money through RISE is expensive, spanning from 50% to 299% APR. Additionally, the maximum loan size is much smaller than some of the other mentioned alternatives. But, repayment terms through the company are from 4 months to 26 months, which may be more desirable than the shorter few weeks you see on most payday loans. Not all states have this term flexibility, though.

Payday Alternative Loans

A better option than a traditional payday loan is a payday alternative loan (PAL). This loan is available through the chartered National Credit Union Association and is backed by the U.S. federal government. Loans are available up to $2,000 with repayment terms of one month to 12 months. During every six months, you can get three PAL loans, but the loans cannot overlap or be rolled over. In other words, one loan at a time to help prevent an unhealthy debt cycle. Besides, the max APR on these loans is 28% — much lower than a traditional payday loan.

How to qualify for a payday alternative loan

There are two types of PAL loans you can apply for — PAL I and PAL II. To qualify for PAL I, you need to join a qualified credit union for at least a month. For PAL II, these restrictions are waived. Contact a credit union that offers PAL loans to begin the application process. The maximum application fee is $20.

Payday loan alternatives to avoid

Cash advances

Those people with credit cards do have the option of getting a cash advance. The credit card runs the advance through as a unique charge with an additional fee. It allows the user to get cash immediately, but at a much more expensive rate. Typically, you’ll pay a fee for the cash advance and then also pay interest on the amount borrowed.

If you have to get a cash advance, realize this will most likely be the most expensive form of borrowing, and, therefore, should be paid off first.

Auto title loans

You may be tempted to take an auto title loan as the rates will be better and approval easier. The problem, though, is that if you default on this loan, the lender can take your car. For many, this would create even more financial problems as they would lose their ability to get to work, the store and take the kids to school. An auto title loan should be avoided due to the risk it can pose to your means of transportation.

If you have no choice but to take out an auto title loan, be aware of the risks you are taking. If you default on the loan, you will lose your car. Make sure you have a repayment schedule ready to protect your transportation asset.

The bottom line

Needing money to cover unexpected costs can be a scary time. It can be tempting to go to the easiest to get a solution, which often may be a payday loan. Before you do that, you need to realize the costs and the potential debt cycle it may start you in. Consider the payday loan alternatives at your disposal and see if you can’t find a better source of borrowing first.

Ask the Expert

 

Brittany and Kelan Kline, TheSavvyCouple.com

Savvy Couple

Brittany and Kelan Kline are the co-owners of the personal finance blog The Savvy Couple, which focuses on how to make money online and handle personal finance. Since starting their site in 2016, the couple has been featured on sites like Forbes, Business Insider and Yahoo Finance.

Why do people take out payday loans despite their high APR rates?

People take advantage of payday loans for many reasons. The two biggest reasons are the simplicity and speed in which cash can be accessed. Many times payday loans are designed for individuals with little or no access to conventional credit. Though the loans are advertised as helpful for unexpected emergencies, seven out of 10 borrowers use them for regular expenses such as rent and utilities.

Payday lenders rely heavily on repeat customers. Oftentimes these borrowers are low-income minorities that are charged outrageous compounding interest for cash advances. The lenders rarely, if ever, offer borrowers workable repayment plans, and in many states, operate with little to no regulations.

What advice do you have for people struggling with their financial situation and considering a payday loan?
First and foremost, you should avoid payday loans as much as possible. They are not a good solution when you’re struggling financially and often make things worse. If you’re living paycheck to paycheck and stressed about money, you need to take a step back and set up a financial plan. Budgeting your money will give you peace of mind and allow you to start making your money work for you instead of the other way around.

The most important thing to focus on when money gets tight is your four walls of survival. These include your housing, utilities, food, and transportation —the bare minimum you need to survive. Everything else should be cut drastically while you build a good financial foundation.

What do you think is the best alternative to a payday loan?
Payday loans are a last-ditch effort, and even if you do find yourself leaning towards payday loans, you should try every other alternative first. Some of these alternatives include:

– Reaching out to family
– Negotiating lower bills
– Your savings account
– A personal loan from your credit union
– Credit cards

Jeff Rose, CFP® and CEO, Good Financial Cents

Jeff Rose

Jeff Rose is a certified financial planner, best known as the founder of GoodFinancialCents.com and LifeInsurancebyJeff.com. His work has been featured in Forbes, USA Today, Business Insider, among others.

What advice do you have for people struggling with their financial situation and considering a payday loan?

Stay away! I once met with someone who took out a nine-month payday loan of $400, and they had an interest rate of 521%. That means $5.35 of interest accrued per day on that loan! The payoff amount was somewhere in the neighborhood of $1,400 for a nine-month loan. These types of terms and interest rates are predatory and dangerous for borrowers, so stay far away from payday loans.

What advice do you have for people struggling with their financial situation and considering a payday loan?

Look for other alternatives and cut back what you can in your existing budget. The real danger with payday loans is that many people renew the loans as often as the fees and interest build up. You’ll end up in an endless cycle of rapidly increasing debt that will be very hard to manage or put a dent in once you want to pay off your balances.

Mark Nicholson, Personal Money Network

Mark Nicholson

Mark Nicholson is the marketing director of Personal Money Network, a site that connects consumers with loans through lenders they work with.

Why do people take out payday loans despite their high APR rates?

There’s a number of reasons. From needing fast cash for emergency repairs or unexpected expenses, they are often quicker solutions than a bank might be able to provide. In some cases, the bank simply isn’t an option due to a poor credit score, and it leaves those affected with little choice but to take a higher interest rate payday loan. When there are few options, sometimes you have to take what is available to you, even when you know the cost of borrowing might be higher.

What are some of your tips for borrowers trying to get out of debt from payday lenders?
Only borrow what you can afford to repay when due. Don’t apply for multiple payday loans at the same time. Only use a payday loan if all other options have been explored.

Are there ever any situations where a payday loan is a good option?

If your account will be overdrawn and you can avoid a hit to your credit score, along with an NSF fee would be one example where the option makes sense. Usually, a payday loan is out of necessity. The high cost of borrowing makes it clear that it is not the first choice.

What do you think is the best alternative to a payday loan?

Many users of payday loans are what is referred to as the unbanked or underbanked. They may not have a credit card, credit line, or even a bank account, making payday loans one of the few options available when they need fast cash.

It’s also worth noting that putting away as little as $10 per week towards an emergency fund will provide you with a nest egg for emergencies within a year that is more than the amount typically requested.

Michael Bonebright, DealNews.com

Michael Bonebright

Michael Bonebright, the Senior Blog Editor for DealNews, is a journalist and consumer analyst with more than 15 years of industry experience. His expert analysis has appeared in Business Insider, CNBC, CNN, Fox Business and Good Morning America.

Why do people take out payday loans despite their high APR rates?

In a word: desperation. People don’t take out a loan against their paycheck because they’re looking to buy something fun and frivolous. They do it because a critical bill is due, and it can’t wait for their next paycheck. The target demographic for these predatory loans is people who can’t pay their bills — people who can’t build the credit necessary to get a reasonable loan.

What are some sales tactics that people should look out for to avoid these predatory payday loans?

Payday loan services are extremely aggressive in their marketing; once you give them your phone number or address, you can expect to get dozens of robocalls, spam texts, and pieces of junk mail every day for years. When you’re struggling financially, all these scammy ads can make you feel like the only solution is taking out another payday loan.

What are some of your tips for borrowers trying to get out of debt from payday lenders?

Payday lenders trap you into a cycle. You borrow to pay a bill, hand over your paycheck when that comes (plus interest), and then next month, the same bill is due — so you take out another loan. The best way to break this cycle is to request a new due date for the bill(s) you’re having trouble paying.

Payment history is the single most important consideration for your FICO score. The sooner you can develop a record of paying for things on time, the less you’ll need a service for people with bad credit.

What advice do you have for people struggling with their financial situation and considering a payday loan?

Call your creditors today, and negotiate a payment schedule that actually works for you. Ask about programs in place for low-income customers. Right now is an especially good time to contact companies asking for help: Unemployment is so high, there are a lot of people in your shoes.

What do you think is the best alternative to a payday loan?

Government assistance can help you fill the gaps in your income, making your paycheck go a little further. There are tons of programs, and it can be very difficult to get approved, but it’s so much better than subjecting yourself to a payday lender.

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Jason Wesley
Jason Wesley
Contributing Writer

Jason Wesley is a seasoned copywriter with a passion for writing about banking, tech, personal growth, and personal finance.As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill set with the rest of the world.